Blast	  from	  the	  past:	  the	  myth	  of	  Velasco’s	  energy	  legacy	  	  Of	  all	  the	  economic	  policies	  and...
same	  regulatory	  agency.	  He	  believed	  that	  the	  centralization	  of	  decision	  making	  under	   the	   Marco...
operations	   similar	   to	   upstream	   petroleum,	   instead	   of	   being	   limited	   to	  partnership	   with	   ...
the	   result	   of	   an	   international	   campaign	   by	   neo-­‐conservatives	   headed	   by	   the	  International...
Perhaps,	   the	   private	   energy	   companies	   were	   not	   comfortable	   with	   the	  “incestuous”	   relations...
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Blast from the past


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Blast from the past

  1. 1. 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  
  2. 2. 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  
  3. 3. 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  
  4. 4. 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.    
  5. 5. 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  (  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.          
  6. 6.