On Agus-Pulangui Privatization and possible alternatives: Prepared by Maris dela Cruz, EmPOWER Consumers Coalition 10 September 2009AGUS-PULANGUI HYDRO COMPLEXES IN MINDANAO CANNOT BE PRIVATIZEDEARLIER THAN 10 YEARS AFTER THE EFFECTIVITY OF RA9136.EPIRA or RA 9136 is very clear on this. SECTION 47 of EPIRA and RULE 23, SEC.4 (F), RA9136 IRR provide for the temporary exemption of Agus-Pulangui from being privatized. Sec.4 (f) of RA 9136 IRR. "The Agus and the Pulangui complexes in Mindanao shall be excluded from among the Generation Companies that will be initially privatized. Their ownership shall be transferred to the PSALM and both shall continue to be operated by the NPC. Said complexes may be privatized not earlier than ten (10) years from the effectivity of the Act, and, except for Agus III, shall not be subject to BOT, Build-Rehabilitate-Operate-Transfer (BROT) and other variations thereof pursuant to Republic Act. No. 6957 (BOT Law), as amended by Republic Act No. 7718. The Privatization of Agus and Pulangui complexes shall be left to the discretion of PSALM in consultation with Congress. PSALM, out of the earnings in the operation of Agus and Pulangui complexes, shall ensure the availability of adequate funds intended for the upkeep of facilities to include funds for repairs, maintenance and expansion of existing facilities;"Aside from conflict with RA 9136, there is also a problem with the issue of WATER RIGHT. IfAgus-Pulangui would be privatized, the water right will be given to the owner of the hydrocomplexes. This will affect the access/use of communities and other people who depend onAgus-Pulangi water for their living, drinking, and sanitation, etc. The case of CasecnanHydropower plant is a good example of how communities in the area were deprived of theirmeans of livelihood when the contractor of Casecnan Hydropower Plant diverted the water fromanother river towards the turbines to generate power.EVEN AFTER 2011 (TEN YEARS AFTER THE EFFECTIVITY OF EPIRA) IT WOULD BEBEST TO RETAIN PUBLIC OWNERSHIP AND CONTROL OF HYDROPOWER PLANTS:a) THE PEOPLE (CONSUMERS/RESIDENTS IN THE COMMUNITY AND WORKERS INTHE PLANT) CAN OWN THE HYDROPOWER PLANT. Agus-Pulange can be publicly-owned -- by the workers and consumers and probably the local government too. The currentworkers can operate it. What they may need is additional financing. The local government mayprovide or facilitate government guarantee to some financial instruments. The governmentprovides guarantees to loans by private companies owned by few individuals, why can’t itguarantee as well financial instruments by people/public-owned corporations.There are some cases worth looking into and maybe emulating too. The American PublicPower Association (APPA) is one case. Public power utilities under APPA are governed bytheir consumer-owners through locally elected or appointed officials. In a few states, publicpower systems are regulated by state utility commissions. Some public power communitiesvest authority in their local city governing body – such as a city council – to guide the utili-ty. Others have independent elected or appointed utility boards. In any case, they are account-able to the citizens they serve. (www.appanet.org)
b) HYDROPOWER PLANTS HAVE CHEAPER GENERATION RATE, LOWEROPERATION COST, HIGHER RETURN TO THE OWNER. Though hydropower plants mayhave higher capacity fees or construction/building costs, but in the long run they are moreefficient -- cheaper generation rate and longer life of plants. (sorry, I can’t find the comparativetable of generation cost per type of plant that we got from Engr. Del Mundo, but NPC engineersand financial people can attest to this).c) SELLING ALL NPC GENERATION PLANTS HAS LESSER IMPACT THANRENEGOTIATING AND RESCINDING IPP CONTRACTS; ADDRESSING SERIOUSLYTHE IPP CONTRACTS WILL RESULT IN LOWER UNIVERSAL CHARGE.Indeed, the value of NPC assets is lesser than the amount of its total liabilities and credits. Since1998, the total amount of NPC lease obligations to IPPs has always been higher than the totalamount of long-term debts of NPC. The huge IPP obligations have actually been the cause ofNPC’s financial collapse. Since 2001, there had been several cases of onerous IPP contractsexposed and investigated by the Senate. In fact, five of them were admitted by the government,through the InterAgency IPP Review Committee, that they were onerous – having seriousfinancial and legal problems. Only 6 IPP contracts turned out to be free from legal and financialinfirmity. It must be noted however, that to this date, there has been no technical reviewconducted yet on the IPPs. The Inter-Agency IPP Review Committee was supposed to conductnot only financial and legal review, but technical review of the IPPs as well.Actions to IPP contracts should range from renegotiation to rescission. But the government lackspolitical will to do this, and it would rather pass the burden to all consumers than negotiate orcompel the IPPs to reduce their costs, amend, or cancel those onerous IPP contracts.Below is the financial condition of NPC (generation and transmission assets), now held byPSALM, from 1998-2005. This was from the ADB Power Sector Development Program LoanDocument in 2005. PSALM’s (NPC and TRANSCO’s) Financial Performance, 1998-2005 Financial Condition (In billion pesos)Item 1998 1999 2000 2001 2002 2003 2004 2005Utility Plants 297.1 277.6 273.5 270.1 268.9 268.2 262.8 309.5Plants Under CapitalLease 166.3 350.9 360 367.2 454.7 552.5 528.3 503.5Other Assets 192.7 233.9 355.5 368.7 429.4 169.3 264.9 266Total Assets 646.1 862.4 989.8 1006 1153 990 1056 1079Long Term Debt 214 238.8 292 290.1 376.3 481.1 348.6 346IPP Lease Obligations 230.5 406.2 485.8 505 595.2 716 680.7 596.1Other Liabilities andCredits 72.5 92 100.9 117.4 120.8 140.1 164 158.3Total Liabilities andDeferred Credits 517 737 878.7 912.5 1092.2 1317.2 1193 1100.4Net Assets 129.1 125.4 111.1 93.5 60.8 (327.20) (137.30) (21.40)Further, IPP contracts can also be rescinded on the legal basis of contract breaches. It had beenfound that most IPPs were not able to deliver power according to their contractual obligations. In1998, 26 IPPs have fell short from their contractual obligation for guaranteed power availability.
Contract breaches among the 21 IPPs resulted in an average actual availability of 37%, way belowthe average guaranteed availability of 82% set by the IPP contracts. The significant discrepanciesbetween guaranteed and actual plant availability constitute major contract breaches. These contractbreaches could be grounds for rescinding or renegotiating the contracts with the IPPs.In 2001, FDC study of IPP contracts showed that if the government rescinded IPP contracts thathave been breached, the savings would be US$ 1.22 billion per year. Meanwhile, if the governmentrenegotiated the IPP contracts down to what is deliverable, the savings would reach approximatelyUS$ 571 million annually1. The US$ 1,036 million expected savings from 2004 IPP renegotiation is amodest achievement when compared to the financial gains from contract cancellation and truerenegotiation; the US$ 1,220 billion annual savings from contract cancellation already surpasses theUS$ 1,036 million expected savings from the recent savings for the first year while US$ 571 millionsavings from contract renegotiation can surpass it in just two years.Given the anomalous and onerous origins of some debts and liabilities of the power sector, the rightpolicy action before the collection of the universal charge are: 1) active renegotiation and/or and even cancellation of unfair IPP contracts 2) comprehensive audit of NPC/power sector debts 3) cancelation of illegitimate power sector debts 4) restructuring of other debts (those proven legitimate, not onerous)------References:ADB. Proposed Program Cluster and Program Loan Republic of the Philippines: Power SectorDevelopment Program. Nov. 2006ADB. Power Sector Development Program Loan. December 2006.Association of Public Power Association. http://www.appanet.org/utility/FDC. PSALM Solution: Cure or Palliative? May 2002.Powerpoint Presentation at the LowerHouse Committee on Energy Hearing.Ocampo, Jamir. “Heading towards the Debt Iceberg with Blind Faith: The Case of ADB’s US$450million PSDP loan,” FDC. Unpublished paper. 2007.RA 9136RA 9136 Implementing Rules and Regulations1 PSALM Solution: Cure or Palliative?.Freedom from Debt Coalition.May 2002.Powerpoint Presentation.