By Maitet Diokno-Pascual
30 August 2004
Since the time of the Bataan Nuclear Power Plant all the way to the present, the bleeding of the National Power Corporation has been intimately linked to the government’s fiscal and debt woes. From 1981 to 1986, Napocor accounted for nearly half (46%) of the deficits of government-owned non-financial corporations. At the end of 1982, slightly over a fifth of the country’s medium- and long-term external debt was owed by Napocor.
The company’s record since 1998 is instructive: losses that have climbed from P4 billion in 1998, to P13 billion in 2000, to P34 billion in 2002. And while the government has yet to publicly release Napocor’s financial statement for 2003, it is said that its losses breached P100 billion in 2003.
By end-2003, according to the Freedom from Debt Coalition, Napocor’s liabilities stood at P1.4 trillion, and were equivalent to over 40 percent of the National Government debt of P3.3 trillion as of the same date.
When in the 1980s the National Power Corporation incurred a $1.2 billion debt to pay for an overpriced power plant, we should already have learned our lessons.
The Marcos crony who brokered that deal has gotten away, himself and his loot stashed safely somewhere in Europe. The Marcos widow and heirs are back from exile, back in politics, and were even seen exchanging “besos” with the President last July.
The US multinational that built the plant (which has yet to produce a single watt of electricity) has been paid twice over. And the US banks whose loans made the fraud possible have recouped their funds, with interest.
We the people are not as fortunate with this debt of dishonor. For one it refuses to go away and to this very day we are still paying for it. President Aquino tried but failed to go after the culprits through the US courts. Following her lost legal battle, her word of honor—surrender?—ensured the security of the country’s creditors.
And what a price we’ve had to pay for their security: a debt crisis in the 1980s, more than one economic recession thereafter, succeeded by a power crisis so disrupting that blackouts were the norm rather than the exception, followed by a shortlived boom that erupted with the Asian financial crisis. And now, a fiscal crisis that threatens a fragile stability.
Throughout all this, the bleeding of Napocor continued unabated. The bleeding has fed and has been fed by cronyism and the debt crisis. It has morphed into lopsided and overpriced Power Purchase Agreements (PPAs) with independent power producers (IPPs). Its old traditional self is returning with all the drama of a multi-billion peso deal, the full details of which have yet to be disclosed to us, but which already promises to (again!) favor an elite family group at our expense.
If the Marcos era was illustrated by an overpriced power plant supplied by an American multinational brokered by a crony, the Ramos era saw a mushrooming of deals that involved more multinationals and billions more of dollars.· New power giants such as Enron, Mirant, Covanta, California Energy, took the place of Westinghouse. As in the Bataan case, income and profits were guaranteed whether or not they produced electricity.
Between 2000 and 2002, Napocor was paying its IPPs capacity fees amounting to an average of P28 billion each year. Of this figure, Napocor recognized just P17 billion (on the average) as expenditures in its annual income statement. Consequently, Napocor’s annual losses were in fact understated. And like the National Government, Napocor had to borrow more than its yearly deficit.
President Ramos misled us when he promised we would not shell out a single centavo for the PPA contracts with the IPPs. He knew—we did not—that the contracts contained clauses that guaranteed the profits of these IPPs. He knew—we did not—that the normal business risks of a peso devaluation and of a fuel price hike were to be absorbed by the Napocor. He must have known—we certainly did not—that the contract price for a good number of these PPAs was higher than Napocor’s own costs for a comparable generating asset.
The PPAs with IPPs have created a new monster that walks like the debt, talks like the debt and moves like the debt: contingent liabilities of Napocor which were 1.6 times Napocor’s debts as of end-2002.
But worse is yet to come.
This year, Napocor’s losses promise to outdo last year’s reported losses of P100 billion.
How and why did this happen? The answer lies in decisions of President Arroyo herself. The first decision explains to a large extent how Napocor’s losses went from P13 billion in 2000 to P10 billion in 2001 to P34 billion in 2002.
In May 2002, in response to the public outcry over the PPA charges in our electric bills, the President imposed a cap on what Napocor could recover from us for the contracts it had entered into with the independent power producers (IPPs). In short, she reduced Napocor's PPA charge from P1.25 per kilowatthour down to 40 centavos per kWh.
Thus she reduced Napocor's revenues by 85 centavos per kWh.
Anyone in business will know that when one’s revenues fall by 85 centavos per kWh, one ought to find a way to reduce costs by at least as much, to avert a disastrous bottom line. The opportunity to do so was via the renegotiation of Napocor's contracts with the IPPs, following the review of these contracts by an Inter-Agency Committee headed by then Finance Secretary Jose Camacho.
Unfortunately, all the Arroyo government was able to renegotiate was a marginal savings of 9 centavos per kWh. Take note that these 9 centavos per kWh are in terms of present value, so the improvement, small as it were, on Napocor's profit picture would not even be immediately felt. And if an independent assessment were made of each of these renegotiated contracts (I have seen one such renegotiation), no doubt the savings claim of 9 centavos per kWh could be legitimately questioned.
The set of decisions taken by the President’s men during the renegotiation of the IPP contracts is the second decision that led to the ballooning losses beginning in 2002. By the end of 2003, the Arroyo government, through the PSALM (Power Sector Assets and Liabilities Management Corporation) had announced that it had renegotiated all it could with the IPPs and that was that. It patted itself on the back for saving consumers a mere 9 centavos.
So, against a loss in revenue of 85 centavos per kWh, all the Arroyo government could muster was a cost savings of 9 centavos per kWh. That should have been enough to make the economic cluster of the Arroyo Cabinet very nervous.
But the bloody tale doesn’t end here. We must remember one thing: the 85 centavo figure is not static. When the peso depreciates against the dollar, when the cost of imported coal, fuel oil, etc., goes up, when Napocor's credit rating falls or world interest rates go up, then that 85 centavo figure also correspondingly expands. And that's another reason why the Arroyo government should have targeted a cost reduction of more than 85 centavos per kWh when it sat at the table with the IPPs to renegotiate the PPAs.
So a cap on the PPA recovery of Napocor, plus bungled and ineffective renegotiations with IPPs—both actions of which only President Arroyo has herself to blame—are resulting in lower revenues for Napocor and rising costs.
That explains the ballooning of the losses of NPC from P4 billion in 1998 to P34 billion in 2002.
A third, even more damning decision of the President will further sink Napocor's losses to new depths this year. In 2003, in exchange for a P20 billion “settlement” that will be collected from us consumers again, the Arroyo government allowed Meralco to renege on its contract to buy electricity from Napocor.
Think of it this way: Napocor's main markets are distribution utilities, and the biggest utility with the biggest market is Meralco. Meralco’s franchise is equivalent to about 70% of the national market for electricity. With the go signal from the President, Napocor lost its biggest client, on whom it was relying for a significant chunk of its earnings.¨
Meralco had a contract to purchase electricity from Napocor. But since the time of Secretary Mario Tiaoqui, ERAP’s Energy Secretary, Meralco had been trying to get out of this contract. It finally succeeded with President Arroyo.
In an interview with BusinessWorld (2 December 2002), Vincent Perez, President Arroyo’s Energy Secretary, explains why Meralco wanted out of its contract with Napocor.
“…Napocor has a 10-year power sale agreement for 3,600 megawatts since 1994. Meralco management subsequently overcontracted power from its own IPPs – 440MW from Quezon Power, 1,500MW from Sta. Rita and San Lorenzo. That combined contracted level of 5,540MW is a lot higher than the current Meralco requirement of 4,500MW.”
Secretary Perez further explains:
“The position of PSALM is that this is a contract that is valid and that Meralco should respect this contract. The contract provides that Meralco can reduce its offtake from Napocor in any economic slowdown, which indeed there is, but provided that it does not reduce its offtake from Napocor and give it to its IPPs.”
Yet this appears to be precisely the outcome of the deal with President Arroyo.
What exactly the deal entails is something the public has not been told. But we must demand to know all the details, as well as the role of the President and her Energy Secretary in brokering this deal. Especially since the latter, together with the professors of the UP School of Economics, wants Napocor's rates to increase to stop the bleeding.
The pattern continues. Deals are made without our knowledge and consent, but we foot the bill. For as long as this pattern continues, the bleeding will not stop.
Any serious attempt to address the National Government’s fiscal problems must seriously put an end to the bleeding of Napocor. A price increase at best neutralizes part of the effect of the hemorrhage, but it fails to attack the cause of the disease.
A price increase creates the illusion that the problem is solved. But we all know, starting with the Bataan Nuclear Power Plant, that it is unjust to solve a problem by socializing the burden of privatized gains. Moreover, economists and technocrats, the keepers of the neoliberal flame, would like us to believe that having raised power rates and privatized Napocor, the bleeding is stopped. It doesn’t take a PhD to know that this isn’t true.
Nor will the privatization of Napocor end the culture of rent seeking, influence peddling and of passing the buck to the government at our expense. It will just make available Napocor’s assets at bargain basement prices to those very actors who have profited from this culture. Upon its privatization Napocor may disappear from the government scene, but its culture will thrive and will re-emerge in another entity in no time at all. That is because those responsible for its bleeding have been rewarded over and over again, while we are told to brace ourselves and bear the burden of painful power rate hikes in the months to come.
We didn’t learn our lesson from the Bataan Nuclear Power Plant 20 years ago. We should start waking up now.