Part Four
CONTRARY to claims that revenues from privatization would help ease the debt burden, power privatization has actually made this worse with impacts affecting both the nation’s coffers and the consumer’s purse.
Electric Power Industry Reform Act (Epira) mandates the government’s assumption of the National Power Corp. (Napocor) debt. In addition all the liabilities and assets of the Napocor have been transferred to Power Sector Assets and Liabilities Management Corp. (PSALM), a government-owned and managed agency created by Epira.
The accounting, thus, far showed the Napocor’s liabilities already exceeding assets. According to Credit Suisse and Arthur Andersen, “the valuation of the Napocor’s assets, as well as the estimated present value of the Napocor’s financial debt and Power Purchase Agreement Obligations, indicates a shortfall of privatization proceeds against liabilities of between $6.9 billion and $8.5 billion.” Again, the government assumed the liabilities from privatization projects. What made this even more onerous was that only 10 percent to 40 percent of contracted capacity from the independent power producer (IPPs) was in reality being generated.
Having the highest rates, second only to Japan, obviously hurts economically disadvantaged consumers the most. According to Freedom from Debt Coalition (FDC), it is usually the women in households who have to find ways to stretch the P280 ($5) daily minimum wage. Aside from lengthening women’s back-breaking working hours, high electricity rates also mean slashing budgets for the most basic needs, such as food, health care, medicines and education.
Answers to problems in the power sector do not lie in handing over the power industry to the private sector. In only a few years the Philippine case already repeats the experiences of other countries whose power and water sectors are undergoing privatization on monopolistic control by the local business elite and big foreign corporations. (Maris dela Cruz, Jayson Edward San Juan & Bruce Amoroto of FDC, 2004).
The restructuring and privatization of the power industry prescribed under Epira had three objectives: (1) rationalizing the roles of the Department of Energy (DOE), the National Electric Authority, the Napocor and the Energy Regulatory Commission; (2) restructuring and privatizing the Napocor; and (3) cross subsidy removal and introduction of so-called competition in the power sector.
The idea of restructuring and privatizing the Napocor involves dismantling the state agency and separating its functions to pursue missionary electrification (Napocor—Small Power Utilities Group) and setting up a National Transmission Corp. (Transco). Immediate casualties of this dismantling were 6,000 Napocor employees retrenched in November 2002.
The Napocor plants and the Napocor–contracted IPPs shall be geographically grouped together to form generation companies (Gencos). Gencos will then be included with other assets and liabilities that will all be transferred to PSALM.
PSALM will take the lead in privatizing Transco and Gencos, and liquidating the Napocor’s real estate and other disposable assets, contracts with IPPs, stranded debts and stranded costs arising from such contracts, the Napocor loans, bonds, securities and other instruments of indebtedness. PSALM assumed the Napocor’s assets and liabilities on June 30, 2003.
Then-Energy Secretary Vincent S. Perez, citing government’s inability to operate and maintain the country’s transmission project, had often stressed the importance of privatizing Transco. The government projects a P105-billion ($2.9 billion) income upon completion of the sale.
A Transco privatization committee was formed to oversee the competitive bidding and eventual award of contract to a private-sector concessionaire (most probably a foreign entity). Aside from Transco, DOE and PSALM officials sit as members of the committee. The committee scheduled the first bidding in August 2003. However, the committee had to announce another bidding failure because no investors showed interest in the deal. The government has since been considering a negotiated bid with Singapore Power, the lone bidder.
The projected revenue accruing from Transco’s privatization is, of course, a long-term consideration of the government. In the short term, however, government needs to privatize Transco to be able to borrow by issuing bonds. This is what Perez deliberately failed to mention that Transco privatization is also an Asian Development Bank conditionality for issuing a partial guarantee to the Napocor through bond floatation which is needed for its 2004 operating expenses.
The government has been finalizing its privatization plan for Gencos. PSALM is proposing that Gencos be privatized simultaneously with the Transco. So far, PSALM was able to arrange five Napocor-owned generating facilities for privatization. The government considered the Transco and Genco privatization as the most important step for opening the power industry to competition. Thus, these have been targeted in preparation for open access and the installation of the wholesale spot market.
Aside from specific provisions covering the Napocor’s restructuring and privatization, Epira proposes reforms for the whole power industry that are deemed essential for market competition. One of these is the unbundling of the rates of distribution utilities to reflect the respective costs of various services (e.g., generation, transmission, distribution of the universal charge) allowing certain costs to be passed on to all end-users. These include, for instance, stranded costs of the Napocor, stranded debts of the national government and stranded contract of distribution utilities.
To be continued