07 November 2003
On March 23, 2003, as the Senate Blue Ribbon Committee resumed public hearing on the Casecnan contract, the Freedom from Debt Coalition (FDC) reiteratee its call that the government should cancel the onerous IPP contracts beginning immediately with Casecnan. The Supreme Court decision nullifying the PIATCO contract sets a very welcome precedent for other onerous government projects especially in the power industry. The government cannot do any less to the Casecnan contract.
Further, FDC urged Senators Joker Arroyo, Sergio Osmeña III, and Sen. Rodolfo Biazon to take the lead in calling for the cancellation of the Casecnan contract.
Like the PIATCO contract, the Casecnan contract is grossly overpriced and was given direct guarantee. The High Court ruled that a direct government guarantee given to PIATCO is against public policy and prohibited under the amended Build-Operate-Transfer Law.
The Casecnan project was an unsolicited proposal but was given direct guarantees contrary to the BOT law. Yet under the auspices of the Ramos administration, the project was able to secure a government guarantee. An unreasonable guaranteed profit was also accorded to US power company CalEnergy, the private sector proponent of Casecnan. The government through the National Irrigation Administration committed itself to pay 801.9 million cubic meters of water every year whether or not the amount was actually delivered or generated. This, without taking into consideration the fact that water delivery fees are fixed and quoted in dollars. The government is expected to pay CalEnergy approximately US$2.9 million per month or US$34.8 million yearly for the water delivery fee.
The water delivery fee will also be automatically adjusted upwards by $0.00043 per million US dollars of certain taxes paid by the company. This resulted in taxpayers paying P3 billion in 2002 and P2.4-billion in 2003. The payments represent the tax liability of NIA under the contract, the payment of which was advanced by CalEnergy.
Aside from the fixed water delivery fee, the government, through NAPOCOR, also committed to buy 19 million kWh of power every month whether or not this is actually generated. When Casecnan started commercial operations in December 2001, it has only delivered a monthly average of 65 percent of the agreed 19 million kWh per month. Despite the shortfall, NAPOCOR still pays for the full cost at US$0.1650 or PhP8.42 (US$1=PhP51) per kWh.
The Casecnan contract is one of the five IPP contracts found onerous by the government’s IPP Review Committee. It is just one of the numerous grossly overpriced IPP contracts. Aside from the grave fiscal consequences, the Casecnan project poses grave social and environmental implications to the affected local communities.
The onerous IPP contracts are root causes of the ballooning purchased power adjustment cost that consumers have to pay. The government must exercise its political will to cancel the onerous contracts, and not merely appease consumers by palliative solutions like reducing the PPA. The people, whether as taxpayers or as consumers, must no longer be made to pay for the costs of these burdensome contracts.