By ANNE MARXZE D. UMIL and RONALYN V. OLEA
MANILA – One of the reasons behind the expensive electricity rates in the country is the debt acquired by the National Power Corporation (Napocor).
Napocor’s debt, which stood at $16.39 billion or some P834.29 billion in 2001, was used to justify the privatization of Napocor. One of the objectives of the Arroyo administration for the passage of the Electric Industry Reform Act (Epira) was purportedly to address Napocor’s debt.
Despite privatization of many of Napocor’s assets in 2010, however, its debt still stands at $15.82 billion, equivalent to more than 26 percent of government’s outstanding debt. Only $570 million have been reduced from Napocor’s debt in 2001. Worse, ten years since the implementation of Epira, Napocor accumulated new debts amounting to $12 billion.
According to Epira, Napocor’s debt shall be shouldered by consumers through the universal charge.
Cycle of loans
How did Napocor acquire such huge debt?
In the same study POWER FAILURE: 10 years of EPIRA, A people’s review on the impact of the Electric Power Industry Reform Act of 2001, Bagong Alyansang Makabayan (Bayan) said the huge debt was acquired by Napocor because of Fidel Ramos’s “sweetheart deals” with the independent power producers (IPPs) under the Build-Operate-Transfer (BOT) scheme. Included in the contracts signed by private investors is the take-or-pay provision where Napocor has to pay for a fixed capacity regardless if such capacity was used or not.
Epira legitimized these unjust contracts and debts. In an attempt to entice investors, Epira mandates that the government automatically assumes Napocor’s P200 billion financial obligations.
Aside from the take-or-pay provisions, the study revealed, these contracts also required NAPOCOR to deliver fuel on-site to provide tax-exemptions for the IPPs. Furthermore, these contracts are dollar-denominated, making NAPOCOR obligations vulnerable to foreign exchange fluctuations.
Despite the so-called “thorough review” of all IPP contracts by an inter-agency committee headed by the Department of Finance (DOF) in 2002, the government did not rescind but only renegotiated the financially onerous contracts.
The Power Sector Assets and Liabilities Management Corp. (Psalm), created by virtue of Epira to privatize the Napocor’s generation and transmission assets including its IPP contracts, even boasted that the renegotiations have resulted in some $1.03 billion in savings for the government. But the so-called renegotiations did not strike out the take-or-pay provisions in the contracts and the “savings” mostly came from IPPs reducing their nominated capacity, or the capacity that government agreed to pay for whether electricity is actually produced or not.
From 2001 to 2010, Psalm already paid $18 billion to settle Napocor’s obligations. Of the said amount, $6.7 billion went to principal amortization; $4.3 billion for interest payments; and $7 billion for obligations to IPPs.
While its IPP obligations have been reduced by $1.63 billion between 2001 and 2010, Napocor’s debt also increased by $1.02 billion during the same period. This implies that IPP obligations have been mainly financed by new debts, Bayan study said.
From 2001 to 2010, Napocor accumulated new debts of $12 billion. Of which, 73 percent represented operational losses while the commissioning of new IPP plants accounted for the remaining 27 percent. Psalm said the commissioning of new IPP plants bloated the total financial obligations of Napocor to $22.35 billion by 2003.
In ten years of Epira’s implementation, Napocor has shelled out an estimate of $1.8 billion every year to pay for its debt, according to Bayan study.
Privatizing Napocor’s assets did little to address Napocor’s financial hemorrhage. According to the Psalm, government has earned $10.65 billion as of October 2010 from the sale of its generation plants, transmission assets, and IPP contracts. Of the said amount, $3.95 billion, came from the privatization of the National Transmission Corporation (Transco) and $3.47 billion from the privatization of generating plants. Meanwhile, the transfer of Napocor’s IPP contracts to IPP administrators (IPPAs) accounted for the remaining $3.23 billion.
However, of the $10.65 billion in total privatization proceeds, only $4.85 billion was actually collected and used to pay for Napocor’s. Psalm said earnings from the privatization of Transco and the IPP contracts will be fully collected in a number of years through a staggered collection scheme. “But in any year when maturing debts exceed privatization collections, Psalm will have no recourse but to raise funds through new loans to pay for maturing obligations,” Psalm said. This explains the $12 billion in new debts incurred by Napocor in the past ten years and why the Napocor debt was reduced by only $570 million.
“Napocor fell into the quagmire of debt due to privatization but the government responded by implementing further the privatization of the power industry through the Epira,” Bayan said in its study.
Bayan said the passage of Epira was a conditionality set by the creditors of Napocor for it to access additional loans. Among its largest creditors are the Asian Development Bank (ADB), World Bank, and Japan Bank for International Cooperation (JBIC). Back then, these creditors were worried that the Napocor might not be able to pay them back.
Debt passed on to consumers
Under Epira, all the costs resulting from the onerous contracts entered into by government with IPPs must be shouldered by consumers.
In other words, consumers are paying Napocor’s debt through universal charge and this universal charge is collected for the recovery of the co-called stranded debt and stranded contract costs of Napocor.
The law defines stranded debts as any unpaid financial obligations of Napocor which have not been liquidated by the proceeds from the sales and privatization of its assets. Stranded cost, on the other hand, refers to the excess of contracted cost of electricity under eligible contracts (i.e. those approved by the ERC as of Dec. 2000) over the actual selling price of the contracted energy output of such contracts in the market. “Stranded cost is basically the take-or-pay capacity payments that will not be offset by the privatization of the IPP contracts and thus will still be shouldered by Napocor,” the study said.
In June, Psalm filed petitions before the ERC to recover Napocor’s stranded debts and stranded contract costs. Psalm wanted 39 centavos per kwh through the universal charge to recover the debts and costs incurred by Napocor over the years.
ERC executive director Francis Saturnino Juan said the ERC will have to act upon the request of the Psalm for a provisional authority to collect within the next 75 days the universal charge for stranded contract costs and stranded debts of the Napocor.
Recently, an official of Psalm also announced they are considering borrowing P80 billion ($1.86 billion) more to pay for Napocor’s maturing obligations and to finance their operations.
Consumers then have to brace themselves for more increases.
Bayan said the debts and costs incurred by Napocor were results of grossly disadvantageous contracts with the IPPs. “It is greatly unjust that these debts be passed on to consumers through higher electricity rates. Yet, Epira legitimized these debts and costs and aggravated the burden of the consumers and taxpayers. Epira must be repealed to correct this grave injustice against the people.”