ECAs in the Philippine Power Sector and the Continuing Debt Problem
Posted on December 12 2003 |
Maristella Cardenas
Freedom from Debt Coalition-Philippines
Introduction
Most, if not all, of the projects that Export Credit Agencies (ECAs) support have only redounded to more harm than good for the people of the “recipient countries”. These projects guarantee profits of private companies while ignoring the financial, economic, social, and environmental impacts to the supposed beneficiaries of the project – the consumers, taxpayers, and host communities.
ECAs have contributed to the debt problem in the developing countries such as Philippines. By providing loans and/or guarantees to costly, fraudulent, and grossly disadvantageous projects, the ECAs have allowed themselves to become instruments in causing burgeoning debts in the recipient countries.
ECAs and Debt in the Philippines: A look into the Philippine power projects
In the pre-privatization period (1970s – 1980s), the US Export-Import Bank, an ECA of the United States of America, prodded the Philippine government to undertake a costly nuclear power project – the Bataan Nuclear Power Plant (BNPP). The plant later became a white elephant due to technical, environmental, and corruption issues surrounding the project.
The BNPP project contributed to the debt crisis in the Philippines. In 1970, the Philippine debt was only $1.6 B. This amount rose to $17.4 B in 1980. After a decade, the amount rose again to $86.6 B largely due to the National Government’s assumption of debts of the government-owned and controlled corporations including the National Power Corporation’s (Napocor) debt from the BNPP project.
Until now, the government carries in its books the BNPP debt as the loans for this project were given government guarantee. In 2002, debt service for this project was $43 million or PhP2.3 B. Of this amount, $28 M or PhP1.5 B was intended for US Eximbank.
The BNPP is a grand tale of greed, corruption, and fraud supported by US Eximbank:
• BNPP, made up two 600-MW nuclear reactors, was the biggest power project ever undertaken in Philippine history until the 80’s; construction of the plant started in 1977 and was completed in 1984.
• The contract was signed in February 1976 between the Philippine government through Napocor and the US company Westinghouse.
• To secure the contract, the US company bribed Marcos crony, Herminio Disini, who then facilitated the approval of the contract.
• During the bidding, the contract was only $500 M, but after bagging the contract, Westinghouse raised the contract price to $1.2 B. US Eximbank justified this by saying that the price was still lower than their estimate of $1.9 B.
• US Eximbank provided loans worth $277.2 M in January 1976 and $367.2 M guarantee despite full knowledge of Westinghouse’s under and overpricing of the contract. It extended $308 M guarantee for two more loans for the project.
• As of 1986, US Eximbank’s exposure to the BNPP project was $900 M.
• It was only in 1981 when all legal questions to the nuclear plant export were resolved in the US.
• The plant never became and should never be operational because of the serious safety and health hazards that it poses on the host and nearby communities. But Filipinos continue to pay for this project until now.
Since late 80s, with the increasing number of private companies entering the Philippine energy sector, the involvement of ECAs in the power projects has also been increasing, guaranteeing costly and questionable projects.
The entry of independent power producers (IPPs) and the increasing debt.
The country experienced power outages in late 80’s that grew into a power crisis in the early 90’s largely due to the expected source of electricity from BNPP never became available as the plant was mothballed in 1987. The government, then under the administration of Pres. Corazon Aquino, had no capital needed in building additional energy capacity.
In light of the looming power crisis and in adherence to the liberalization, deregulation, and privatization policies of the international financial institutions such as the International Monetary Fund, the World Bank, and the Asian Development Bank, the government went into the first phase of privatization in the energy sector. In 1987, Pres. Corazon Aquino, opened the electricity generation sector to private capital. This paved the way for the entry of IPPs in the Philippines.
The number of IPPs increased in the early 90’s during the height of energy crisis. These IPPs secured financial backings and guarantees from ECAs such as the Overseas Private Investment Corporation (OPIC), Export Credit Guarantee Department (ECGD), and the Japan Bank for International Cooperation (JBIC). However, the creditors of the IPPs including the ECAs still required direct or indirect guarantees from the Philippine government. In the end, it is the Philippine government that assumes the financial obligations to these private power companies. Through these government guarantees, the creditors and ECAs are assured of payments from the IPPs.
To encourage entry of private sector, the companies are given unnecessary guarantees through the following provisions in the contract: “take-or-pay” – Napocor will pay for the contracted electricity regardless if the full amount is generated or not; about 10%- 40% only of the 85% contracted capacity is actually consumed; Fuel guarantee; Exchange rate guarantee; and Tax exemption.
On top of these guarantees that assured the IPPs of a windfall profit, the cost of electricity per kilowatt-hour of the IPPs is higher compared to that from Napocor’s own power plants. Most of the contracts with IPPs are dollar-denominated thus making it even more expensive.
In 1994, the Philippines already had oversupply of electricity, but the government still entered into new contracts with the IPPs. By 1998, there were already a total of 46 contracts forged by the government with the IPPs. Many of these IPPs secured financial backing from the ECAs either in the form of political risk guarantee, insurance guarantees, and/or loans.
Most of the 46 IPP contracts contain the provisions that guarantee income for the power companies and financial burden for the government and the electricity consumers. Three of the five (5) IPP contracts that were found onerous by the government’s Interagency IPP Review Committee (IAC) are supported by ECAs: Casecnan Multipurpose Irrigation and Power Project has guarantees from OPIC; Sual Coal-fired power plant has financial support from ECGD and COFACE; and San Roque Hydropower Project has financial backing from Japan Export-Import Bank (JBIC).
The oversupply of electricity and expensive power cost of IPPs contributed largely to the financial bleeding of Napocor. The deteriorating financial situation of Napocor became the major reason of the government for privatizing the power industry. The Electric Power Industry Restructuring Act (EPIRA) that gave legal mandate for the privatization of Napocor and restructuring of the power industry was passed in 2001.
NPC DEBTS (1994-2002) |
In thousand Pesos) |
|
long-term debts
|
lease obligations
(BOT)
|
1994 |
122,156,660 |
-
|
1995 |
134,498,413 |
39,043,141
|
1996 |
142,870,466 |
178,112,056 |
1997 |
211,452,192 |
256,934,881 |
1998 |
230,082,620 |
242,460,054 |
1999 |
269,479,525 |
428,323,153 |
2000 |
319,079,403 |
511,633,447 |
2001* |
327,839,789 |
535,295,919 |
2002* |
397,912,061 |
693,873,251 |
2003** |
398,210,255
|
877,582,627
|
*certified/unaudited
** estimate |
|
|
As of year 2000, the principal balance of Napocor’s financial debt obligations were estimated to be at US $ 6.77 B, 18% or US $1.23 B of this is owed to ECAs.
The total Napocor debts as of 2002 is 20% of the P5 trillion Philippine debt. Under EPIRA, the government shall assume P200 B of Napocor’s debts. The rest of the financial obligations shall be recovered from the electricity consumers and from the proceeds of Napocor privatization.
Impact of ballooning debts arising from power projects
Increased debt burden of the government also means increased suffering for the taxpayers and the Filipinos in general, especially the poor who comprise almost 60% of the total population.
The Philippine government’s budget for 2002 was only P769.8 B. The amount automatically appropriated by the government for debt servicing was 26.16% or P192 B of the budget. That was only for interest payment, almost equal to the total budget for social services, which was 30.73% of the budget.
This year, the interest payment is 27% or P223 B of the P811 B total budget. This means that people receive fewer services from the taxes they’re paying.
The economic cost of the power projects to consumers is greater:
• high electricity rates. Almost 100% of the cost of electricity actually consumed goes to the expensive power agreements.
• For households with average electricity consumption of 200 kWh a month, 23% of the family’s income is spent for electricity alone. The daily minimum wage is only about P200. This means adjusting the budget, decreasing the budget for food or for other expenditure, and lessening the usage of electric household appliance.
Calls/Demands:
• public investigation of all debts
• Cancellation of all illegitimate debts, fraudulent debts, and debts arising from onerous projects
• Cancellation of onerous IPP contracts
• ECAs, stop providing guarantees to questionable, costly, and environmentally damaging projects
People affected by the ECA-supported projects are doing all means to either cancel or reduce the cost of the anomalous and grossly burdensome projects. To avoid facing the risk of losing from questionable and financially unviable projects, ECAs should stop providing guarantees or loans to these projects. If the contracts of these projects were cancelled, this would mean financial costs not only to the ECAs and their respective governments, but to their people as well.•
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