the napocor & the bataan nuclear power plant debts odious legacies of power ana maria r. nemenzo...

The NAPOCOR & the Bataan Nuclear Power Plant DebtsOdious Legacies of Power

Ana Maria R. NemenzoPresident, FDC

Freedom from Debt Coalition

Freedom from Debt Coalition2

Topic Outline

NAPOCOR & the Public Debt Burden

Then: The Bataan Nuclear Power Plant – A

Legacy of Fraud, Corruption and Odious Debt

Now: The NAPOCOR and Onerous IPP

Contracts -- A continuation of BNPP legacy

NAPOCOR & the Public Debt Burden

Then: The Bataan Nuclear Power Plant – A

Legacy of Fraud, Corruption and Odious Debt

Now: The NAPOCOR and Onerous IPP

Contracts -- A continuation of BNPP legacy


The NAPOCOR Debt The public sector debt stood at P 5.39 trillion during

the third quarter of 2003. A significant portion of this debt comes from the

National Power Corporation [NPC]. At end 2003, its audited financial statement showed P 1.17 trillion in long-term debts and lease obligations to independent power producers [IPPs]. Current estimates put these debts and obligations at P1.4 trillion, equivalent to about 20% of the consolidated public sector debt.

Of all of NAPOCOR’s debts, the Bataan Nuclear Power Plant loan [assumed by the Aquino Government in 1986] and current contracts with Independent Power Producers are the most burdensome and onerous. And so our story begins...

The public sector debt stood at P 5.39 trillion during the third quarter of 2003.

A significant portion of this debt comes from the National Power Corporation [NPC]. At end 2003, its audited financial statement showed P 1.17 trillion in long-term debts and lease obligations to independent power producers [IPPs]. Current estimates put these debts and obligations at P1.4 trillion, equivalent to about 20% of the consolidated public sector debt.

Of all of NAPOCOR’s debts, the Bataan Nuclear Power Plant loan [assumed by the Aquino Government in 1986] and current contracts with Independent Power Producers are the most burdensome and onerous. And so our story begins...


Corruption & fraud taint the BNPP debt & project

The deal between Westinghouse and the Marcos government involved bribery, overpricing and subcontracting awards to Disini-Marcos companies during the plant construction [I.e., Power Contractors, Inc.; Summa Insurance Corp., Technosphere]

From 2 Feb. 1979 – 7 Sept. 1981: Westinghouse payments flowed into Disini holdings [Herdis Management & Interbank] to the tune of $5,949,580.16.

Originally quoted at $500 million each for two power plants, the project price would eventually be jacked up to $ 1.1 billion for one plant. When construction was completed in 1985, total project cost reached $2.2 billion because of escalating cost adjustments and additional costs due to safety corrections.

The deal between Westinghouse and the Marcos government involved bribery, overpricing and subcontracting awards to Disini-Marcos companies during the plant construction [I.e., Power Contractors, Inc.; Summa Insurance Corp., Technosphere]

From 2 Feb. 1979 – 7 Sept. 1981: Westinghouse payments flowed into Disini holdings [Herdis Management & Interbank] to the tune of $5,949,580.16.

Originally quoted at $500 million each for two power plants, the project price would eventually be jacked up to $ 1.1 billion for one plant. When construction was completed in 1985, total project cost reached $2.2 billion because of escalating cost adjustments and additional costs due to safety corrections.


BNPP: Public Assumption of Private Debts

The BNPP case is an early example of government assumption of what were clearly loans and obligations tainted with corruption and fraud.

In 1986, Marcos falls and flees. President Corazon Aquino mothballs the BNPP in April 30 through a unanimous Cabinet decision.

However, in October of that year, she issues Executive Order 55 transferring BNPP foreign loan obligations & assets from Napocor to the national government.

Finally, on October 15, 1995, the Ramos government finally agrees to settle with Westinghouse out of court.

The BNPP case is an early example of government assumption of what were clearly loans and obligations tainted with corruption and fraud.

In 1986, Marcos falls and flees. President Corazon Aquino mothballs the BNPP in April 30 through a unanimous Cabinet decision.

However, in October of that year, she issues Executive Order 55 transferring BNPP foreign loan obligations & assets from Napocor to the national government.

Finally, on October 15, 1995, the Ramos government finally agrees to settle with Westinghouse out of court.


The Public is still Paying the Assumed BNPP Loans Today

The original BNPP loan was $1.084 billion. By December 1988, the loan amounted to $2.67

billion, accumulating interests and other add-ons. Today, 28 years after construction began, the Filipino

people are still paying the BNPP debt. Interest payments amounted to P496 million in 2003, while principal payments amounted to P1.78 billion for the same year. [Source: Bureau of the Treasury]

The Filipino people will continue paying until year 2018 for the outstanding BNPP debt amounting to P6. 26 billion as of end-2003.

The original BNPP loan was $1.084 billion. By December 1988, the loan amounted to $2.67

billion, accumulating interests and other add-ons. Today, 28 years after construction began, the Filipino

people are still paying the BNPP debt. Interest payments amounted to P496 million in 2003, while principal payments amounted to P1.78 billion for the same year. [Source: Bureau of the Treasury]

The Filipino people will continue paying until year 2018 for the outstanding BNPP debt amounting to P6. 26 billion as of end-2003.


BNPP: Creditor Complicity & Irresponsible Lending

The U.S. Export Import [EXIM] Bank financed the project fully aware of Westinghouse’s overpricing and questions about the health, safety and environmental problems of the plant. It released project funds despite these questions, even when Westinghouse still had no license to export the nuclear plant to the Philippines.

March 1975: Westinghouse quoted $1.2 billion for one reactor. Then-EXIMBANK president William Casey [later CIA director] estimated the price for the reactor at over $1.6 billion.

September 1975: RP government applied for a loan with US EXIMBANK for one reactor costing $1.1 billion [$722 million + $387 million for interest and escalating costs]

The U.S. Export Import [EXIM] Bank financed the project fully aware of Westinghouse’s overpricing and questions about the health, safety and environmental problems of the plant. It released project funds despite these questions, even when Westinghouse still had no license to export the nuclear plant to the Philippines.

March 1975: Westinghouse quoted $1.2 billion for one reactor. Then-EXIMBANK president William Casey [later CIA director] estimated the price for the reactor at over $1.6 billion.

September 1975: RP government applied for a loan with US EXIMBANK for one reactor costing $1.1 billion [$722 million + $387 million for interest and escalating costs]


Now: Onerous IPP ContractsThe Story Begins Again...

In 1986, Pres. Corazon Aquino abolishes the Ministry of Energy. Afterward, no government support is given to rehabilitate existing power plants and build new plants due to lack of fund; to address the looming power shortage, Aquino signs EO 215 in 1987, opening power generation to the private sector that has the needed capital.

In the beginning of the 1990s, the country is hit by power shortages and frequent brown outs. This grew into a power crisis under Pres. Ramos who succeeded Aquino.

To address the power crisis, Ramos asked for and was given emergency powers. Under his Administration, NAPOCOR enters into expensive 10 to 25-year contracts with independent power producers [IPPs], most of which were signed during 1992-94.

NAPOCOR currently has 46 IPP contracts: 13 were signed from May 1990 - April 1992; 31 from September 1992 - November 1997; and, 2 in July & November 1998. To date, 35 of these contracts are active while the rest were already expired or terminated.

In 1986, Pres. Corazon Aquino abolishes the Ministry of Energy. Afterward, no government support is given to rehabilitate existing power plants and build new plants due to lack of fund; to address the looming power shortage, Aquino signs EO 215 in 1987, opening power generation to the private sector that has the needed capital.

In the beginning of the 1990s, the country is hit by power shortages and frequent brown outs. This grew into a power crisis under Pres. Ramos who succeeded Aquino.

To address the power crisis, Ramos asked for and was given emergency powers. Under his Administration, NAPOCOR enters into expensive 10 to 25-year contracts with independent power producers [IPPs], most of which were signed during 1992-94.

NAPOCOR currently has 46 IPP contracts: 13 were signed from May 1990 - April 1992; 31 from September 1992 - November 1997; and, 2 in July & November 1998. To date, 35 of these contracts are active while the rest were already expired or terminated.


Guaranteed income for IPPs, burden to the government and the consumers

Take or Pay Agreement: Napocor promised to buy 70%-90% power (whether actually generated / utilized or not) of the total capacity of IPP plant. (*Only 20%-40% is actually generated).

Fuel Cost Guarantee: Napocor will supply fuel to the IPP, and subsequently absorb any fluctuations in the cost of fuel.

Foreign Exchange Rate Guarantee: All IPP contracts are in US dollars. NPC absorbs any dollar fluctuation.

Overpriced Power: In 1996 average IPP generation cost was US$76 per MWh, compared with US$57 MWh for NPC.

Source: Pascual, “Contracted Power Failure”, 2000.

OBVIOUSLY ONEROUS


Onerous IPP contracts: the Magellan Cogeneration Inc. case

MCI operated a coal-fired power plant and entered into power supply contract with the Cavite Export Processing Zone Authority (CEPZA) in June 1993. It also entered into an energy conversion agreement with NPC in September 1993. This last contract contained a take or pay provision.

CEPZA cancelled its contract with MCI in 2001 as the power plant no longer generated electricity. Instead of generating electricity, MCI was only buying cheaper power from NPC and delivering this to CEPZA. (MCI became a power trader, instead of power generator). The company is financially and technically incapable of delivering power. [Its mother company in the United States meanwhile has filed for bankruptcy in April 2002.]


Onerous IPP contracts: the Casecnan Irrigation and Power Project (year 2000-2020)

An unsolicited proposal in May 1994 from US company, CalEnergy (main project proponent), the project was able to obtain government guarantees.

Expensive Power: US$0.165/kwh equivalent to almost P9/kWh compared to NPC’s hydropower costing less than P2 / kWh.

Expensive Water Delivery Fee: The National Government through NIA pays more than P2 billion annually (as contingent liabilities, that become actual liabilities under NIA)

Government Guarantees / Risk Absorption: The project proponents will receive at least $72.7 million a year from the NIA and S36.4 million a year in energy fees from NPC, whether the project delivers the contracted volume of water or whether its power plant operates and generates electricity.


Onerous IPP contract: Caliraya-Botocan-Kalayaan - IMPSA

Although an unsolicited project, CBK-IMPSA was given government guarantee

IMPSA was never technically and financially qualified to undertake the CBK power project. It disregarded NEDA rules on government bidding.

The contract contains onerous provisions grossly disadvantageous to the government:

Under the original agreement, the project should have started in 2004. But due to the supplemental agreement forged in 1998, the operation started earlier than scheduled. In 2002, NPC started shelling out US$2 million.

Although an unsolicited project, CBK-IMPSA was given government guarantee

IMPSA was never technically and financially qualified to undertake the CBK power project. It disregarded NEDA rules on government bidding.

The contract contains onerous provisions grossly disadvantageous to the government:

Under the original agreement, the project should have started in 2004. But due to the supplemental agreement forged in 1998, the operation started earlier than scheduled. In 2002, NPC started shelling out US$2 million.


Initial Results of Interagency Review Committee for IPP Contracts

Of the 35 IPP contracts reviewed by the inter-agency review committee: Five [5] contain onerous terms [i.e. Binga

hydroelectric, MCI, Sual coal-fired, Casecnan, San Roque multipurpose project]

Only six had no legal or financial issues 24 had “financial, remedial policy & remedial

financial issues” and need to undergo further scrutiny by the departments of Justice and Energy, PSALM, and NEDA

Of the 35 IPP contracts reviewed by the inter-agency review committee: Five [5] contain onerous terms [i.e. Binga

hydroelectric, MCI, Sual coal-fired, Casecnan, San Roque multipurpose project]

Only six had no legal or financial issues 24 had “financial, remedial policy & remedial

financial issues” and need to undergo further scrutiny by the departments of Justice and Energy, PSALM, and NEDA


Impact of NAPOCOR’S Onerous IPP Contracts

As consumers, Filipinos have to pay higher power rates.

NAPOCOR’s debts and guarantees to these IPPs add to the public sector debt, which we pay for as taxpayers. The government sells bonds in behalf of NPC. In effect,

government assumes NPC liabilities/maturing obligations. The government is also the one paying for the interest of these bonds and other loans.

From 1999-2003, NG took over P44.5 billion of NPC debt (source: The Deepening Crisis, a white paper by 11 UP Econ. Professors)

As consumers, Filipinos have to pay higher power rates.

NAPOCOR’s debts and guarantees to these IPPs add to the public sector debt, which we pay for as taxpayers. The government sells bonds in behalf of NPC. In effect,

government assumes NPC liabilities/maturing obligations. The government is also the one paying for the interest of these bonds and other loans.

From 1999-2003, NG took over P44.5 billion of NPC debt (source: The Deepening Crisis, a white paper by 11 UP Econ. Professors)


According to Manasan, in 2003-2004, the bulk of the public sector deficit was traced to NAPOCOR [77% - 78%]

According to Rep. Andaya, NG-assumed debts by NAPOCOR will increase the targeted deficit of P 197 billion by P 36 billion this year.

According to Manasan, in 2003-2004, the bulk of the public sector deficit was traced to NAPOCOR [77% - 78%]

According to Rep. Andaya, NG-assumed debts by NAPOCOR will increase the targeted deficit of P 197 billion by P 36 billion this year.


Thank you . . .

AUDIT ALL PUBLIC SECTOR DEBTS


Main Sources & References Republic of the Philippines & National Power Corporation [NPC] v.

Westinghouse Electric Corporation, Westinghouse International Projects Company and Burns and Roe Enterprises, Inc., Affidavits in Support of Plaintiffs’ Memorandum of Points and Authorities, Volume I-II, CA No. 88-5150 (US District Court; New Jersey, 1988).

______________ Complaint for Money Damages and Equitable Relief and Demand for July Trial, CA No. 88-5150 (US District Court; New Jersey, 1988).

______________ Plaintiffs Memorandum of Points and Authorities in Opposition to Defendant’s Motion to Stay Pending Arbitration, CA No. 88-5150 (US District Court; New Jersey, 1988).

Republic of the Philippines & National Power Corporation [NPC] v. Westinghouse Electric Corporation, Westinghouse International Projects Company and Burns and Roe Enterprises, Inc., Affidavits in Support of Plaintiffs’ Memorandum of Points and Authorities, Volume I-II, CA No. 88-5150 (US District Court; New Jersey, 1988).

______________ Complaint for Money Damages and Equitable Relief and Demand for July Trial, CA No. 88-5150 (US District Court; New Jersey, 1988).

______________ Plaintiffs Memorandum of Points and Authorities in Opposition to Defendant’s Motion to Stay Pending Arbitration, CA No. 88-5150 (US District Court; New Jersey, 1988).


Main Sources & References ______________ Republic of the Philippines Answers and

Objections to Defendant Westinghouse’s First Set of Interrogatories, CA No. 88-5150 (US District Court; New Jersey, 1988).

Freedom from Debt Coalition, Briefer on the Campaign on IPPs in the Philippines, September, 2001.

Freedom from Debt Coalition, Power Sector Privatization in the Philippines: Struggles and Challenges, 2003.

Rosario Manasan, Fiscal Reform Agenda: Getting Ready for the Bumpy Ride Ahead, PIDS Discussion Paper Series No. 2004-26.

______________ Republic of the Philippines Answers and Objections to Defendant Westinghouse’s First Set of Interrogatories, CA No. 88-5150 (US District Court; New Jersey, 1988).

Freedom from Debt Coalition, Briefer on the Campaign on IPPs in the Philippines, September, 2001.

Freedom from Debt Coalition, Power Sector Privatization in the Philippines: Struggles and Challenges, 2003.

Rosario Manasan, Fiscal Reform Agenda: Getting Ready for the Bumpy Ride Ahead, PIDS Discussion Paper Series No. 2004-26.

the napocor & the bataan nuclear power plant debts odious legacies of power ana maria r. nemenzo...

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