Masinloc Fiasco Exposes Pitfalls of Privatization

If the Masinloc case is any indication of what we can expect from full power privatization under the Electric Power Industry Reform Act (EPIRA), then we should prepare for more overpriced electricity bills as government yields to the caprices of private companies and some officials pocket millions of pesos in kickbacks.

By Arnold Padilla

IBON Features

Posted by Bulatlat

The Power Sector Assets and Liabilities Management (PSALM) Corporation was quick to give assurance that government’s power reform program is on track despite suffering a major setback due to the failed $561.74-million privatization of the Masinloc coal-fired power plant. But the Masinloc fiasco merely confirmed that the neoliberal restructuring of the electric power industry is not viable.

As it stands now, government would fail to achieve the already substantially revised targets of the Electric Power Industry Reform Act (EPIRA) of 2001 in disposing the generation and transmission assets of the National Power Corporation (Napocor).

Energy officials gripe over the supposed loopholes in EPIRA as the major reason for the snail-paced implementation of reforms in the electric power industry. However, the EPIRA itself and the concept of power privatization are fundamentally flawed to ensure more affordable electricity rates and guarantee a stable power supply.

Unscrupulous Tactics

Cases such as Masinloc should be expected under the government’s power privatization program as private businesses like YNN Pacific Consortium, Inc. (Masinloc’s original winning bidder) resort to unscrupulous tactics just to corner a contract. Public interest is not the utmost priority but how much money they can generate out of the country’s power assets.

This explains YNN’s very high bid of $561.74 billion which, it turned out, the consortium could not raise. The situation is worsened by corrupt PSALM officials who would force a deal no matter how inimical it is to public interest and reward themselves with fat bonuses.

Neoliberal privatization promotes corruption as clearly demonstrated in the Masinloc fiasco. For P10 million ($191,021.97, based on an exchange rate of P52.35 per US dollar) in bonuses, PSALM officials approved a $561.74-million contract with an undercapitalized company whose paid-up capital is only P625,000 ($11,938.87) and whose maximum capitalization is only P10 million ($191,021.97).

If ever YNN was able to close the Masinloc deal, poor consumers will have to face exorbitant power rates for YNN to recover its overbid and profit from the power plant. During the first bidding in December 2004, the Masinloc plant has one of the cheapest production costs in the country at P1.97 ($0.04) per kilowatt-hour (kWh). One estimate says that for YNN to recover and profit from an overbid of $561.74 million, Masinloc’s production cost when it was bid out would have to shoot up by 144 to 154 percent.

Huge Blow to EPIRA

The Masinloc fiasco is a huge blow to EPIRA considering that it is one of the biggest generation assets of Napocor and its transfer to a private operator is deemed crucial to the success of government’s power sector reform program. Based on the March 2006 report “Update on the Privatization of Generation and Transmission Assets” prepared by the Power Sector Assets and Liabilities Management (PSALM) Corporation, the 600-megawatt (MW) plant accounts for almost 99% of the rated capacity privatized so far by government. Further, the winning bid price for the Masinloc plant comprises 99% of the total winning bid price for all privatized generation assets pegged at $566.95 million.

PSALM is tasked to privatize 31 power plants with a total generation capacity of 4,337.2 megawatts (MW). With the failed Masinloc privatization, government has only privatized five small Napocor generation assets with a combined capacity of only 8.5 MW. There are now serious doubts on the viability of selling big-ticket assets that are scheduled for privatization this year including the 600-MW Calaca coal plant, 685-MW Tiwi-Makban geothermal plant, 112-MW Pantabangan-Masiway hydropower plant, 360-MW hydropower plant, 620-MW Limay diesel plant and 114-MW Iligan I and II diesel bunker plant.

Another major stumbling block in government’s neoliberal power restructuring is the privatization of the National Transmission Corporation (TransCo), which was supposed to be privatized in July 2003 under a 25-year concession contract. But due to various reasons, TransCo will only be auctioned this September or more than three years later than the original deadline. And until today, there are still some unresolved issues in its privatization like the inclusion of the management of TransCo’s fiber optic assets in the concession contract.

Meanwhile, the Wholesale Electricity Spot Market (WESM) was only instituted last month while under EPIRA, it should have been established around June 2002. The WESM was supposed to “provide the mechanism for identifying and setting the price of actual variations from the quantities transacted under contracts between buyers and sellers of electricity.” But as IBON pointed out, the spot market is useless because of cross-ownership and monopoly control that EPIRA perpetrates.

Strongest Argument

However, the strongest argument against the viability of EPIRA is not only its much delayed implementation, which is marred by irregularities, but the concept of neoliberal privatization itself. If the Masinloc case is any indication of what people can expect from full power privatization under EPIRA, then we should prepare for more overpriced electricity bills as government yields to the caprices of private companies while some officials pocket millions of pesos in kickbacks.

Neoliberal privatization as a model for restructuring the local power sector is highly vulnerable to narrow private interests that compromise public good and the national interest in their pursuit of profit. Only a program for nationalization where the state assumes full and effective control over the generation, transmission and distribution of electricity can ensure just and reasonable power rates. In the meantime, criminal and administrative charges should be filed against PSALM officials for trying to cash in on the Masinloc privatization. Bulatlat

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