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Volume IV,  Number 23              July  11 - 17, 2004            Quezon City, Philippines


 





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NPC: The Debt Zap

The specter of an impending power crisis, meaning more power brownouts, is being raised to scare the public into accepting outrageous power rate increases resulting from the 77 percent increase in generation charges that the National Power Corporation (NPC) plans to bill power distributors.  Lost in the discourse is the question of why, in the first place, did the NPC end up with a whopping debt.

By Alexander Martin Remollino
Bulatlat.com

The specter of an impending power crisis, meaning more power brownouts, is being raised by some economic officials to scare the public into accepting outrageous power rate increases resulting from the 77 percent increase in generation charges that the National Power Corporation (NPC) plans to bill power distributors.  This will in turn be passed on to power consumers by distributors such as the Manila Electric Company (Meralco).

Napocor has recently announced an increase in its generation charges, which is expected to take effect after July. From the current national average of P2.57 ($0.459) per kilowatt hour (kwh), NPC’s rates will climb to P4.56 ($0.0814)/kwh in Luzon, P4.59 ($0.082) in the Visayas, and P3.13 ($0.056) in Mindanao.

Energy Secretary Vince Perez last week said the rate increases are necessary to enable Napocor to cope with the payments for its P500 billion ($8.93 billion) debt. Napocor’s debt may reach P1.3 trillion ($23.2 billion) if no steps are taken to address its financial burden.  According to this logic, NPC’s debt burden will gravely affect its financial viability and therefore its capability to continue generating electricity leading to power outages.  

Media reports quoted NPC president Rogelio Murga as saying, “At the end of the decade, we see a reformed power sector. We just need to make sacrifices for about two years. If not, NPC would be burdened with a huge debt.” 

“With this attractive rate adjustment, maybe investors will come and build power plants and mitigate the crisis that is expected to hit the power sector by 2008,” said Murga.

Lost in the discourse is the question of why, in the first place, did NPC end up with a whopping debt.

Bolt back

NPC was established in 1936 with then President Manuel L. Quezon’s signing of Commonwealth Act 120.  It was mandated to develop the country’s hydropower. Later on, the development of geothermal, oil, coal, and other power sources was included in its mandate.

In Nov. 1972, President Ferdinand E. Marcos signed Presidential Decree No. 40, which directed NPC to build power plants and transmission lines throughout the country, and supply power to all private and local government-owned utilities and cooperatives. In effect, NPC was able to monopolize the Philippine power industry.

NPC under the Marcos regime had a program for building additional power plants to adjust to the country’s rising demands for power supply. Part of this was the construction of the Bataan Nuclear Power Plant (BNPP), north of Manila.

But corruption, which had always been part of the existing system but was particularly rampant during the Marcos years, got the better of things and by the time the BNPP project was completed, its cost had been bloated at $2.3 billion.

The government of Corazon Aquino, who succeeded Marcos in 1986 in a people’s uprising mothballed the BNPP even as it continued paying Westinghouse the “cost” of building the plant.  The BNPP is costing the government P3 billion ($53.6 million) a year.

Engr. Ramon Ramirez, a convenor of the broad consumer group People Opposed to Warrantless Electricity Rates Increases (POWER), said “The trouble (with that) is that this plant would have generated more electricity in response to the increasing demand, modest though it may have been.”

“The result was that the supply was not enough to meet the demand at that time, so we started to experience fluctuating electricity at home, which eventually turned into long hours without electricity,” he added.

The Aquino government sought to address the problem by issuing an executive order permitting private corporations to build power plants, paving the way for what are now called independent power producers (IPPs). This was complemented by Republic Act 6957 or the Build-Operate-Transfer (BOT) Law, which gives incentives to private-sector investments in public utilities.

FVR’s onerous contracts with IPPs

As president, Fidel V. Ramos asked Congress for emergency powers purportedly to address the power crisis. Thereafter the legislature passaed the Electric Power Crisis Act, which gave Ramos the power to enter into negotiated contracts with IPPs.

According to Ramirez, “Because the need was urgent and the people were already raging against brownouts, those who signed the contracts with IPPs excused themselves by saying that they were forced to accept onerous terms like the take-or-pay scheme.  Under this scheme, NPC agrees to buy a certain amount of power within the contract period and then pay for its quantity, whether or not the electricity generated is used.”

The electrical engineer cites as an example the case of the 50-megawatt power plant in Zamboanga City, Mindanao in southern Philippines, from which only 20 percent of the power generated is used.  But the government agreed to pay for the total power generated by the plant because of the take-or-pay term, which he calls “a technical term for fraud.” Because of this arrangement, Ramirez says, Napocor loses about P400 million ($7.14 million) a year.

Another case is that of the Iligan I and II Diesel Power Plants in Misamis Oriental, also a province in Mindanao from which only 11 percent of the electricity generated was used from 1994 to 1998 even as NPC was paying for all of it. During the said period, Ramirez said, Napocor lost some P900 million ($16.07 million), or about P180 million ($3.21 million) a year.

Even as the power outages eventually stopped, the Ramos administration’s negotiations with IPPs continued. According to Ramirez, the Ramos government went on entering into contracts with IPPs even when there was already more than enough power supply.

The 1997-1998 Asian financial crisis, wherein the value of the peso plummeted from P26.50 for every dollar to P40 for every dollar, aggravated the debt burden of NPC as its contracts were dollar-denominated.

Zapping power consumers

The administrations that succeeded the Ramos regime have done nothing either to resolve the dilemma brought about by NPC’s debt burden.

During the term of Joseph Estrada (July 1998-January 2001), the Asian Development Bank (ADB) issued a Power Restructuring Program paper which stated that the $300-million power sector loan being negotiated by NPC from ADB and a $400-million loan from the Miyazawa Fund were contingent on the condition that “Borrower shall have enacted a law, the Omnibus Power Industry Law to govern the power industry.”

The Electric Power Industry Reform Act (EPIRA), sponsored by Sen. John Osmeńa who lost his bid for reelection last May, was enacted in 2001 after President Gloria Macapagal-Arroyo was installed in Malacańang by a popular uprising. The EPIRA allows NPC to pass on its debt burden to power consumers in the form of rate increases.

Because of NPC’s debt burden, power consumers are to put up with an increase of more than P100 ($1.79).  The increase, according to POWER, is outrageous considering that the current minimum wage of rank and file employees and workers is a mere P250 ($4.46) per day.

Pretty much like the government zapping the people with electric bolts. Bulatlat.com

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