Part Four
Increase in IPP contracts and liabilities
FOR his part, President Fidel V. Ramos deliberately convinced Congress to grant him emergency power to deal with the worsening power situation. Republic Act (RA) 7648, or the Electric Power Crisis Act (Epca) of 1993, allowed his regime to enter into negotiated contracts with independent power producers (IPPs).
His administration complemented Epca with RA 7718, or the expanded build-operate-transfer law, which granted the private sector a broad range of investment incentives, unmindful of its the deleterious effects to consumers.
Between Ramos and former President Gloria Macapagal-Arroyo, a total of 46 IPP contracts were signed, with National Power Corp. (NPC) playing the lead role for the government’s power projects.
Before the end of Ramos’s term, NPC gradually went bankrupt. Its liabilities grew as income declined over the years, while the ratio of loans to capital expenditure consistently increased. In terms of debt-to-equity ratio, NPC had become increasingly dependent on debt, just 10 years after the fall of the Marcos regime.
According to the Bureau of Treasury and the Freedom from Debt Coalition (FDC), obligations to the IPPs rose to P244 billion from only P35 billion in 1995, while long-term debts had risen to P441 billion in 1997.
By June 2003 NPC had $7 billion worth of debt, excluding the $250-million bond partly backed by Overseas Private Investment Corp. Around $500 million of $7 billion and other sovereign contingent guarantees have matured in 2003.
NPC obligations as of mid-2004 reached more than P1 trillion, of which P700 billion is due the IPPs. NPC’s financial obligations represented at one time more than one-fifth of the P5.39-trillion national debt.
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 from $6.1 billion to $6.77 billion. Worse, these liabilities and obligations continued to grow until today.
The heavy financial losses, the huge capital requirement for upgrading power facilities, and the so-called inefficiencies of the public sector eventually became the government’s major reasons for pushing the passage of the Omnibus Electric Power Industry Bill. The more compelling reasons, however, were the new loans dangled by international financial institutions (IFIs), the approval of which depended on the enactment of the proposed measure, FDC said.
First filed in 1996, the power bill met sustained opposition from people’s organizations and prominent individuals like Sen. Juan Ponce Enrile who relentlessly opposed and exposed the onerous contracts and the many threats they posed to consumer’s interests.
Intervention by IMF and other IFIs
IN December 1999 the International Monetary Fund intervened. In a letter addressed to the House Committee on Energy, Marcos Rodlauer, IMF’s chief mission officer, called for the immediate passage of House Bill 8457, or the Omnibus Power Bill, stressing the importance of “investor confidence and the adherence to international financing institutions’ conditionality.”
The letter further noted: “We are disappointed to learn that the ‘Electricity Reform Bill,’ which you have sponsored appears to have run into some further delays in passing through the House of Congress. As you are aware, the program supported by the IMF expected passage of this bill before the end of the year, which already represented a significant delay from earlier schedules.”
The IMF had included the privatization of NPC as part of its “exit program” prescription for the Philippines. As stated under the Memorandum of Economic and Financial Policies of the Philippine government, “the structural-reform agenda of the country will increase the resiliency of the corporate sector mainly by improving the enabling legal framework, continuing trade and investments liberalization, developing of the domestic capital market, additional privatization and further strengthening of external debt management.”
The memorandum explicitly emphasized that the government remains committed to carry out its privatization plan in the coming years: “Going forward in privatization efforts will focus on disposing off remaining major items, which are strategically vital to industrial development, particularly the NPC.”
The IMF pressure was part of its Precautionary Standby Arrangement for the Philippines worth $1.4 billion for the year 1998 and 1999.
To stop the country’s financial hemorrhage, President Joseph Ejercito Estrada stopped the practice of issuing sovereign guarantees when he assumed office.
According to FDC, the main architects of power sector reforms were the World Bank and the Asian Development Bank (ADB). Their policy toward power sector reform stemmed from the perspective that developing countries need energy, particularly electric power, for social and economic development. Today their primary focus is on rural electric cooperatives, allocating almost $201.3 million thus far.
Other energy projects in the Philippines with World Bank loans amounted to $1.5 billion. One of these, the $65.5 million in loan, was extended to the country’s biggest distribution company, the Meralco. The Bank’s other lending window, the Global Environment Project, financed some $442 million in different Philippine power projects. These projects carried sovereign guarantees.
Another indicator of significant international financial institutions’ involvement in power privatization is the role of the ADB, whose biggest loans in the Philippines also go to the power sector. The bank’s investments are designed to create a competitive market in the electricity sector through the privatization of NPC and the restructuring of the entire sector.
The ADB lending in the power sector, according to FDC, had reached $2.257 billion by 2002. For power restructuring, the ADB funded $300 million. World Bank and the JBIC provided additional funding of $400 million, while United States Agency for International Development released several more millions of dollars in the form of technical assistance grants.
To be continued
To reach the writer, e-mail cecilio.arillo@gmail.com.