Blast from the past: the myth of Velasco’s energy legacy Of all the economic policies and programs initiated by the Marcos government, none has been much vilified and demonized than the energy development program implemented by former Energy Minister Geronimo Z. Velasco under Martial Law. What comes to mind as history judge the program are the accusations of corruption in the Bataan Nuclear Power Plant, human rights violations in the Chico River Dam project, and the lack of transparency in the awarding of government contracts with the appurtenant largesse to favored cronies. In Velasco’s memoirs contained in Trailblazing: The Quest for Energy Self-‐Reliance (Anvil, 2006), he prided in the fact that he steered the state-‐owned Philippine National Oil Company (“PNOC”) during his stint as President and CEO to become the only Filipino-‐owned corporation ever to become listed on Fortune magazine’s Top 500 Companies outside the United States from 1978 to 1981. When the international consulting firm Arthur D. Little made an evaluation study funded by the Asian Development Bank for the Petroleum Authority of Thailand in 1985, among its recommendations was for the latter to follow the organizational pattern and system of PNOC. At the helm of the Ministry of Energy, Velasco earned the plaudit of the World Bank, which lauded the Philippine energy program as a model for Third World countries. Martial Law and Velasco’s Energy Machinery Velasco admitted that he worked in a highly centralized decision-‐making and rigid political environment during Martial Law and it did not matter to him if he had to shortcut administrative processes to attain his single objective of reducing the country’s dependence on imported oil. Under the specter of an oil shortage, President Marcos was able to impose rationing of oil products during the 1973 oil crisis by issuing General Order 41, directing PNOC to assume supervision over the sale and distribution of all available stocks of crude oil and oil products, whether imported or produced by the local oil refineries. Velasco used his closeness to President Marcos so that PNOC can be exempted from civil service rules and government audit. In a span of six years, from 1974 to 1980, Velasco and his management team created twenty-‐three PNOC subsidiary companies that focused on three areas: petroleum refining and marketing; transport and logistics; and energy exploration and development, the creation of which in such a short time would not have been possible were it not for Martial Law. At PNOC, Velasco basically learned the ropes of energy diplomacy by negotiating government-‐to-‐government oil supply contracts with Saudi Arabia, Indonesia, United Arab Emirates and others, which was then perceived to reduce the nation’s reliance on oil being imported by the multinational oil companies. Velasco was so powerful then that he concurrently controlled a government energy regulatory agency and a state energy machinery being regulated by the
same regulatory agency. He believed that the centralization of decision making under the Marcos administration was conducive for building the energy infrastructure as quickly as possible unlike the current democratic political system, which poses obstacles in planning, decision-‐making, and action. Oil Industry Special Fund Velasco was also able to have President Marcos establish a special fund of one centavo per liter imposed on the retail prices of petroleum products, to be used for energy development. In April 1974, the then Oil Industry Commission ruled that Php 0.01 per litter would be added to pump prices for the purpose of creating the Oil Industry Special Fund. The special fund helped PNOC finance the procurement of its tanker fleet and initiate projects related to energy exploration and development. In fact Velasco was able to convince an initially reluctant President Marcos to release Php 15 million from the Oil Industry Special Fund for the construction of the National Institute of Geological Sciences at the University of the Philippines (“UP”). Velasco was able to make arrangement for the construction of a nonconventional energy research building in the UP Diliman area and in the process tapping the expertise of the UP College of Engineering. And Velasco was not even an alumnus of UP but of the Mapua Institute of Technology! Development of Technical Capability Velasco being the visionary recognized during that time that there was an appalling lack of consolidated data on different energy sources. He commissioned scientific and technical studies to aid the creation of a systematic inventory of indigenous energy sources for oil, coal, geothermal, hydro and others. To be able to develop a comprehensive energy policy, Velasco believed that it was imperative to set up such an inventory. One of his legacies was the establishment of an Energy Data Center, which continues to be accessible to all stakeholders at the present Department of Energy. He also believed that PNOC should make a conscious effort to hire the country’s top geologists, engineers, physicists, and other scientists to help carry out his mission for energy independence. Velasco enticed scientists and technologists from UP, fresh from graduate studies in top international universities, to join government and challenged these young idealists to contribute and enhance their knowledge in the quest for energy self-‐reliance. Hits and Misses Velasco most lasting legacy was generating power from geothermal energy where the country vaulted to be the second largest producer. Of the alternative energy programs that the government embarked on in response to the oil crisis, geothermal development yielded the most substantial results in the shortest possible time. Velasco, realizing the importance of foreign risk capital, wanted to liberalize the entry of foreign firms and allow them full control of geothermal
operations similar to upstream petroleum, instead of being limited to partnership with government or private local corporations. However, the President Marcos disagreed and reminded Velasco that his idea then was against the 1973 constitution. Velasco also accelerated the coal development program by requiring small-‐scale coal miners to unify their coal landholdings into sizeable coal blocks of at least 1,000 hectares, and enter into new operating contracts with the government patterned after petroleum service contracts. The program also called for the conversion of the fuel base of the cement industry from petroleum to coal and the establishment of a nationwide logistics system consisting of an infrastructure network of coal terminals, ports, relay stations, and blending and off-‐loading facilities. However, the alcogas and the coco-‐diesel programs were learning experiences for PNOC and the Ministry of Energy. Technical difficulties, access to raw materials and lack of economies of scale cause these projects to fizzle. Also the abrupt change in government, which caused policy discontinuity, hastened the demise of the fuel substitute projects, as they require long lead times in the production process. In hindsight, Velasco understood the shortcomings of the projects but it was incomprehensible why PNOC did not learn the lesson when later on it attempted to embark on a jatropa biofuel project. Ironically, it was two politically controversial projects of Velasco’s National Power Corporation (“NPC”) -‐ the Bataan Nuclear Power Plant and Chico River Basin Development Project, which were partly instrumental in bringing down the Marcos government. Dismantling the Marcos Energy Infrastructure Velasco revealed that his greatest disappointment was that the hard work put in at PNOC and the Ministry of Energy went down the drain when President Corazon Aquino shortly after assuming the presidency, issued Executive Order 20 abolishing the Ministry of Energy and placing all its attached offices, agencies, and corporations under the administrative supervision of the Office of the President. Velasco accused Cesar Buenaventura, then the head of Anglo-‐Dutch Shell operations in the Philippines, of advising Mrs. Aquino to shut down the Ministry of Energy and close the nuclear facility permanently because Velasco alleged that the nationalist policies under Marcos “threatened to erode the oil companies’ position in the energy market.” Velasco blamed high energy prices and looming power shortages to the three biggest mistakes of President Marcos’s successors: the mothballing of the Bataan Nuclear Power Plant, the sale of Petron, and the break-‐up of NPC, which he believed “were rooted in lack of understanding and appreciation for energy issues, lack of foresight and, most important of all, provincialism in politics.” Mike Billington of the Executive Intelligence Review (2006) theorized that the hysteria induced at that time against the Marcos regime was to no small extent
the result of an international campaign by neo-‐conservatives headed by the International Monetary Fund and the London/New York banking houses against nuclear power, aimed at undermining the energy independence of sovereign nations. Prof. Randy David, a self-‐professed oppositor to the Bataan Nuclear Power Plant, writing his 2007 eulogy for Velasco in the Philippine Daily Inquirer, summed up Velasco’s memoir of the Marcos years as “not all about primitive accumulation through corruption but about the painful attempts of nameless public servants to expand the country’s productive base and build an economy based on modern industry and technology.” Velasco lamented that other presidents have not done any better, undoing past achievements and prioritizing political careers in making decisions on energy matters. Former Energy Secretary to President Fidel Ramos, Francisco Viray takes exception to Velasco’s statement that the post-‐Marcos administration did not have a comprehensive energy development plan. He argued that the plans and programs of the Ramos administration were built on the achievement mentioned in Velasco’s memoirs by continuing the policies on the development of indigenous energy resources, renewable energy and energy conservation. More importantly Viray added, “the policy on deregulation and liberalization of the oil and power industry are policies called for in the current form of political governance” but which Velasco debunked in his memoirs as a ruse for the foreign control of sovereign nations. Lessons for Resources Bureaucrats Velasco reigned in an era where achievements are measured by barrels of oil produced and megawatts of electricity put on stream. He was neither a mouthpiece of private energy companies nor a slick power point presenter harping on energy contracts awarded and media-‐hyped band-‐aid solutions to power shortages and oil price hikes. He built a formidable team of highly educated technocrats and professional managers who scrutinized and vetted every data and information submitted by energy contractors to the government for possible flaws and misrepresentations. The Ministry of Energy on its own, produced data, information and reports, and did not rely entirely on what the service contractors submitted. Velasco and his team knew where they were going and how to get there. While present resource bureaucrats spend most of their time lobbying for the passage of investments laws and implementing policy rules, declaring them as achievements of their administrations, these were no big deal to Velasco. After all, he had the legislative backing of President Marcos under Martial Law! Understandably, the Martial Law energy machinery has its inherent flaws on issues of transparencies and accountability, and prone to corruption. It would have been highly likely that it could have sputtered without a strongman at the helm. Velasco operated under a legal regime where there are no or limited laws on environment, social acceptability, indigenous peoples rights, protected areas, land access issues, local government devolution, which present resources bureaucrats have to contend with. In fact most of environmental and social legislations were brought about by the abuses of the authoritarian regime.
Perhaps, the private energy companies were not comfortable with the “incestuous” relationship between Velasco’s companies and the Ministry of Energy, which hastened the privatization of the state owned energy and power companies. Velasco himself admitted that any current move in the direction of energy self-‐reliance to be significant must have to operate under a host of constraints that were not present in his time. Whatever Marcos’s “sins” were, Velasco believed that the late president could claim energy development as a single achievement. We could hardly disagree. Fernando “Ronnie” Penarroyo is the Managing Partner of Puno and Penarroyo Law Offices (email@example.com). He specializes in Energy, Resources and Environmental Law, Business Development and Project Finance. He is a trustee of the International Geothermal Association, the National Geothermal Association of the Philippines and the Philippine Mineral Exploration Association.