Squeezes NAPOCOR Dry
vicious cycle of debts and power rate hikes will continue unless there is
a radical shift in policy. It is important for the Macapagal-Arroyo
administration to go back to its own review of IPP contracts in 2002 and
unconditionally rescind the most onerous of these deals. There is also an
urgent need to reverse the privatization of the National Power Corporation
By IBON Features
Posted by Bulatlat
Sen. Joker Arroyo was right when he said that the recent rate hike of the
National Power Corporation (NAPOCOR) should be blamed on President Gloria
After all, Macapagal-Arroyo allowed the onerous contracts of NAPOCOR with
independent power producers (IPPs) to continue as part of government’s
efforts to implement the government corporation’s privatization.
IBON estimates show that without the onerous contracts with the IPPs,
NAPOCOR could have saved around P59 billion ($1.05 billion) in 2002. The
amount should have been enough to offset current losses and eliminate the
need for a rate hike.
The lopsided contracts with private and foreign-owned generation companies
resulted instead in huge debts for NAPOCOR, discouraging investors from
pouring in money.
Given the financial state of NAPOCOR, the Arroyo administration plans to
absorb its debts amounting to P500 billion ($8.91 billion). A provisional
P0.98 ($0.02) per kWh increase was also imposed just to convince the
private sector that NAPOCOR is still a good buy.
“sweetheart deals” of NAPOCOR with the IPPs represent the biggest
strain on government finances. To draw foreign investments in the power
sector, government agreed to shoulder all the risks associated with market
demand, fuel cost and foreign exchange fluctuation.
For example, the “take or pay” clause requires NAPOCOR to pay 70
percent to 100 percent of the capacity of an IPP (capacity fee). Looking
at its latest available income statement, the “take or pay” clause
(amortization of capacity fees) cost NAPOCOR P37 billion ($659.07 million)
in 2001 and 2002.
Most of these capacity fees went to the IPPs with the most onerous
contracts (e.g., with legal and financial issues based on the findings of
the IPP Review Committee) with NAPOCOR like the 1,000-megawatt (MW) Sual
Coal Fired Power Plant in Pangasinan.
In 2001 and 2002, NAPOCOR paid the plant’s IPP, US-based Mirant Sual
Corporation, P15.6 billion ($277.88 million) in capacity fees or 42
percent of the total capacity fees for the said period. Mirant has a
build-operate-transfer (BOT) agreement with NAPOCOR for 25 years (1999 to
According to the IPP Review Committee, NAPOCOR’s contract with Mirant
allowed the IPP’s high-nominated capacity, which is not mandated by its
BOT/Energy Conversion Agreement (ECA) with government. The contract also
gave Mirant a high level of minimum energy off take, high rate of return
and high escalation cost. Not surprisingly, Mirant Sual Corp. posted the
third highest income of P6.9 billion ($122.91 million) in 2002.
A big portion of the capacity fees in 2001 and 2002 also went to the IPPs
of the 310-MW Hopewell Power Plants 1 and 2 with P10 billion ($178.13
million); 70-MW Bakun Plant Units 1 and 2 with P4.5 billion ($80.2
million); and the 1,200-MW Ilijan Natural Gas with P2.4 billion ($42.75
Meanwhile, since its contracts with IPPs are quoted in dollars, NAPOCOR
also allowed the IPPs to recover losses due to foreign exchange (forex)
In 2001 and 2002, NAPOCOR spent P35.7 billion ($635.91 million) in its
amortization of deferred forex differential (which includes forex
fluctuations accruing on loans for projects under construction and on
restatement of outstanding loans used for operating plants).
Of this amount, amortization of deferred forex differential for IPP plants
(under BOT arrangement) accounted for P17.1 billion ($304.60 million) or
Another onerous provision of its contract with IPPs is the fuel cost
guarantee, which required NAPOCOR to supply and pay for the fuel used by
the IPPs. In 2002, NAPOCOR spent more than P29 billion ($516.57 million)
for the fuel cost guarantee, of which P23 billion ($409.69 million) went
to IPPs in Luzon; Visayas, P4.6 billion ($81.94 million); and Mindanao,
P1.8 billion ($32.06 million).
These anomalous clauses in the IPP contracts explain NAPOCOR’s financial
hemorrhage, which has been worsening in recent years. (See Table)
and Deficit of NAPOCOR
(in billion pesos)
National Power Corporation and Department of Finance
/p – projection
debts of NAPOCOR have rapidly accumulated, reaching P1.3 trillion ($23.15
billion) according to the latest Department of Finance (DoF) estimates.
The amount accounts for 65 percent of total debts of all government-owned
and -controlled corporations (GOCCs) and 25 percent of combined national
government and GOCC debts as of September 2003.
NAPOCOR’s debts as a percentage of the national government debts could
even be higher considering that the latter has been absorbing the state
power firm’s debts to make it viable for privatization. Government’s
mishandling of NAPOCOR is among the biggest reasons the country faces a
fiscal crisis today.
Unfortunately, instead of canceling its onerous contracts with the IPPs
which is a major reason behind NAPOCOR’s indebtedness, the Macapagal-Arroyo
administration continues to honor these contracts under the Republic Act
No. 9136 or the Electric Power Industry Reform Act (EPIRA) of 2001. EPIRA
– the result of a strong lobby from the IMF, WB, ADB and the IPPs – is
the government’s blueprint for the full privatization of NAPOCOR.
Even before the recent rate hike of NAPOCOR, consumers are already being
burdened with quarterly increases in fuel, purchased power, and forex
differential resulting from forex fluctuation – reflected in adjustments
in the Generation Rate Adjustment Mechanism (GRAM) and Incremental
Currency Exchange Rate Adjustment (ICERA) – under EPIRA.
Privatization has been bleeding NAPOCOR dry and consumers have been
shouldering all the costs of this policy. Recently, government confirmed
its plan to again borrow $750 million through bond offering to refinance
NAPOCOR’s debts even as the President admitted that the country is in a
The vicious cycle of debts and power rates hike will go on as long as
government does not shift from its policy of power privatization and
neoliberal restructuring. The Macapagal-Arroyo administration can start by
going back to the results of its own review of IPP contracts in 2002 and
unconditionally rescind the most onerous of these deals, and reverse the
privatization of NAPOCOR.
is no other way. IBON Features / Posted by Bulatlat
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