SONA 2010: Noynoy to continue Cory’s privatization legacy

Legislators congratulate Aquino after delivering his first SONA where he pushed for Public-Private Partnerships to augment state funds (Photo from AP/Bullit Marquez)

In his first State of the Nation Address (SONA), President Benigno Aquino III used the various cases of misuse of public funds by the Arroyo administration as a pretext to promote the so-called Public-Private Partnerships or PPPs. According to Aquino, PPPs will address the lack of resources due to a depleted government budget for the country’s many needs. (Read the full text of Aquino’s SONA here)

Incidentally, PPPs were among the legacies of the first Aquino administration. It was during the term of Noynoy’s mother, the late President Cory Aquino, that the first PPPs in the power generation sector were implemented. In 1987, she issued Executive Order (EO) No. 215 that allowed private corporations to construct and operate electric generating plants. (Read here) Cory’s privatization formed part of a wide-ranging package of structural reforms pushed by the International Monetary Fund (IMF) and the World Bank to supposedly address the country’s fiscal crisis in the late 1980s.

Meanwhile, together with transnational corporations (TNCs) and other foreign firms, the country’s richest families who are also perceived supporters of Aquino like the Lopezes, Ayalas, Cojuangcos and Pangilinans among others have been aggressively investing in PPP projects including in energy, water, toll roads and other vital infrastructures.     

‘Progressive and creative’

Aquino said in his speech that he remains upbeat despite a budget of just 6.5 percent of the total with still six months remaining as private investors have expressed renewed interest and confidence in the Philippines. In fact, according to Aquino, one investor is proposing to construct an expressway connecting Manila and Cagayan Valley at no cost to the government.

Another investor is proposing to lease the lands occupied by the Philippine Navy headquarters along Roxas Boulevard and its Naval Station in Fort Bonifacio, disclosed Aquino. The unnamed investor will foot the bill of the Navy’s transfer to Camp Aguinaldo, immediately pay US$100 million, and share a portion of profits from businesses it will establish on the leased lands.   

“Sa madali pong sabi”, said the President proudly, “makukuha natin ang kailangan natin, hindi tayo gagastos, kikita pa tayo”. Aquino identified the most pressing needs of the country as education, infrastructure and health, as well as the needs of police and military personnel. He described PPPs as a progressive and creative way to raise funds and address the country’s age-old problems.       

Cory legacy

Aquino’s PPPs, however, are neither progressive nor creative and as pointed out, simply a continuation of the neoliberal policy pushed by the IMF-World Bank and implemented by Cory. PPPs are simply a mode of privatization implemented through the build-operate-and-transfer (BOT) and other similar arrangements between the government and big private corporations. (For a full list of completed, operational, and awarded PPP/BOT projects in the Philippines, click here) (The World Bank continues to promote PPPs in infrastructure development through capacity building and technical assistance. Read here)

EO No. 215 was expanded and reinforced by Republic Act (RA) 6957 which introduced BOT and build-and-transfer (BT) schemes in the country. This law, passed in 1990, authorized the financing, construction, operation, and maintenance of infrastructure projects by the private sector. (Read here)

Like her son, Cory used the grim fiscal situation left behind by the Marcos dictatorship to justify her privatization/BOT program that was later expanded (in 1993) by the Ramos administration through RA 7718. (Read here) This legislation introduced other BOT schemes such as build-own-and-operate (BOO), build-lease-and-transfer (BLT), build-transfer-and-operate (BTO), contract-add-and operate (CAO), rehabilitate-operate-and-transfer (ROT) and rehabilitate-own-and-operate (ROO).   

These schemes allowed the biggest foreign and local corporations to invest in infrastructure development and operate or own strategic facilities that are “normally financed and operated by the public sector”.  These facilities include power plants, highways, ports, airports, canals, dams, hydropower projects, water supply, irrigation, telecommunications, railroads and railways, transport systems, land reclamation projects, industrial estates or townships, housing, government buildings, tourism projects, markets, warehouses, solid waste management, information technology networks and database infrastructure, education and health facilities, sewerage, drainage, dredging and other infrastructure and development projects.

Napocor, MWSS

Among the notable examples of and biggest PPP projects in the Philippines are the privatization of the National Power Corp. (Napocor) and the Metropolitan Waterworks and Sewerage System (MWSS).

It is actually ironic that while championing the PPP, Aquino cited the P200-billion debt of Napocor from 2001 to 2004 as among the examples of wasteful and flawed programs of the Arroyo administration. Aquino claimed in his SONA speech that the state power firm’s debt ballooned because it was forced to sell cheap electricity at a loss presumably for electoral reasons. What Aquino did not mention was that Napocor’s financial bleeding was caused by PPP initiatives implemented by past administrations.

Napocor’s debt soared as government assumed all the project risks related to building and operating a power plant in its rush to attract private investors. Thus, Napocor agreed to pay for 70-100 percent of generation capacity of independent power producers (IPPs) even if electricity is not actually produced (take-or-pay). The state power firm also consented to pick up the tab for the IPPs’ fuel needs (fuel-cost guarantee). Without these guarantees, private investors would not take interest in the country’s power sector which has a relatively small market.

Similarly, while Aquino criticized the MWSS officials’ many abuses, including P160.1 million in questionable allowances and benefits, he did not mention that billions of pesos in taxpayers’ money had been used to save the failing privatization of water in Metro Manila. In 2004, Malacañang bailed out the Lopez family, one of Aquino’s perceived political patrons, to the tune of P8.3 billion by temporarily taking over the heavily indebted Maynilad Water Services Inc. The bailout was meant to preserve the integrity of the country’s water privatization program.

In short, PPPs may provide immediate fiscal relief but actually burdensome in the long-term for the perennially bankrupt government. These types of projects are often heavily funded by foreign debt, including official development assistance (ODA) and require practically no equity from private contractors. Thus, while Aquino claimed in his SONA that government will not shell out a single peso in these PPPs, the reality is that government would assume the risk of the foreign debt and pass on the burden to the people through taxes.  

Anti-people, pro-business

The private sector builds and operates roads, hospitals, utilities, etc. not out of altruism but out of expectation to earn profits. Thus, PPPs in infrastructure development often result in exorbitant user fees including tolls, fees, rentals, and other charges – burden shouldered by the people on top of paying taxes to government.

Consumers of power and water, for instance, have been forced to shoulder fluctuations in inflation, foreign exchange, fuel prices, etc. In the case of power, households are forced to pay for unused electricity and bear monthly increases in rates while water bills in Metro Manila have soared by 449 to 845 percent since MWSS was privatized in 1997. (Read here and here)

Furthermore, starting next month, motorists plying the South Luzon Expressway (SLEX) will have to endure an increase of 233 percent in toll fees imposed by the private operator. (Read here) Power, water, toll roads are all charged with the onerous 12 percent value added tax (VAT) along with other basic commodities and services in the Philippines.

In his SONA, Aquino also criticized the over-importation of rice by the National Food Authority (NFA). Before the SONA, Cabinet officials have announced that NFA rice subsidies would be scrapped because they are prone to pilferage and abuse. (Read here) These moves set the tone for the implementation of the longstanding plan to privatize the NFA, which the Department of Finance (DOF) said is in deep debt worth P125 billion. Note that corruption, mismanagement, and indebtedness were the same reasons used to justify the privatization of Napocor and MWSS.

Aquino’s promotion of PPPs and privatization in his SONA has further reinforced the view that his administration is incapable of introducing new policies that will reverse the old pro-business, pro-market neoliberal policies of the past administrations, including the Arroyo administration.

SONA 2010: Water, power crises

Aquino just inherited from previous administrations the country’s water and power insecurity but the challenge is will he overhaul the existing policy framework that has allowed the privatization and deregulation of the country’s utility sectors and created the mess we are in right now? (Photo from Reuters/Cheryl Ravelo)

First published by the Philippine Online Chronicles

Part 1

President Benigno Aquino III will hold his first State of the Nation Address (SONA) on Monday, July 26 amid a water shortage engulfing a substantial portion of Metro Manila, with long queues for rationed water becoming a common sight.

Meanwhile, about two weeks ago, around the same time when the Manila Electric Co. (Meralco) announced another rate hike, a brownout hit the President’s residence at Times Street in Quezon City which he blamed for arriving late for an appointment. Rotating brownouts have been just as frequent as power rate hikes in the past couple of months.

“Wala nang kuryente, wala pang tubig, ang taas pa ng singil” is the common man’s complaint.

The double whammy of water and power crises, of supply disruptions and skyrocketing rates is being felt not only in the metropolis but nationwide. Government officials and private utilities have pinned the blame squarely on force ma jeure like the prolonged dry spell and slow dam replenishment due to lack of enough rains.

However, there are obvious policy issues that the latest episodes in water and power supply insecurity have brought to the fore. Considering their immediate and long-term effects on the people’s welfare and overall economic development, Aquino is expected by the public and policy makers to outline in his SONA how the administration plans to address these recurring problems.

Magnitude of the water shortage

According to the latest update from the Department of Public Works and Highways (DPWH), 344 barangays (villages) with close to 3 million people in the service area of Maynilad Water Services Inc. are already affected by the water shortage. The number is almost half (49 percent) of the entire West Zone concession area of Maynilad, which together with its East Zone counterpart Manila Water Co. Inc., took over the water distribution function of the privatized Metropolitan Waterworks and Sewerage System (MWSS) in 1997.

Maynilad chief operating officer Herbert Consunji disclosed that as of July 20, at least 18 percent (equivalent to some 450,000 people) of those affected by the water shortage in the West Zone can be considered as “severely affected”. This means that these areas have available water supply for only up to six hours at most or none at all.

In an earlier advisory posted on its website, Maynilad said that among those severely affected are 22 barangays in Quezon City, 13 barangays in Caloocan City, 4 barangays in Malabon, 4 barangays in Valenzuela City, 2 barangays in Las Pinas City, and 1 barangay in Navotas. The Pangilinan-Consunji-controlled water utility has already deployed 28 tankers to ration water in these areas. Reports say that residents are forced to line up as early as 5 AM and wait for Maynilad’s tankers.

In the service area of Manila Water, a smaller 21 percent is being affected by the water shortage, according to DPWH Secretary Rogelio Singson as quoted in a news report. The Ayala-led water firm in a separate report admitted that there is already a gradual reduction in water pressure in elevated within its concession area such as in parts of Pasig, Marikina, Cainta, Rodriguez, Taguig, and San Mateo in Rizal province. Manila Water may also have to resort to water rationing if the water level in Angat Dam – where they and Maynilad get 97 percent of their water supply for the domestic needs of Metro Manila and parts of Cavite and Rizal – will not improve in the coming months.

Blame it on the (lack of) rain

Due to a depleted water level because of the El Niño phenomenon, the private water concessionaires said that their water allocation from Angat Dam has substantially declined. DPWH reported that at present, Maynilad is actually receiving 1,800 million liters per day from Angat Dam, down from its normal level of 2,400 million liters per day (a 33.3 percent reduction). Manila Water, on the other hand, has seen its allocation dwindle to 1,245 million liters per day from 1,600 million liters per day, or a 28.5 percent reduction.

Latest update from the MWSS on the water level in Angat Dam pegged it at

Among the many promises of water privatization was 24/7 access to water for all (Photo from Raffy Lerma)

158.2 meters above sea level (masl) as of July 21. A day before that, it dropped to 157.56 masl, lower than its historic low of 158.15 masl in September 1998 which was also an El Niño year. Authorities said that recent typhoons “Basyang” and “Caloy” did not substantially replenish Angat Dam, adding up a combined 27 centimeters only. The critical level of Angat Dam is pegged at 180 masl, which was breached in April during the height of the latest El Niño. Without heavy rains, the dam’s water is expected to further recede to 147 masl by September. At 120 masl, the dam could no longer provide water for Metro Manila’s domestic consumption.

Rotating brownouts, power rate hikes

The lack of rains and depleting water level in the country’s major dams because of the El Niño have also been blamed for the power crisis – characterized by rotating brownouts and spikes in electricity rates – that has hit the country this year. In March, the power supply deficits reached record highs with Luzon experiencing a shortfall of 641 megawatts (MW) and Mindanao, 700 MW, according to the National Grid Corporation of the Philippines (NGCP).

Meralco had to implement a 90-minute power supply disruption throughout the day because of the supposed deficiency in available electricity. In Mindanao, blackouts have lasted by up to 12 hours a day, a situation that began as early as February. The southern island heavily depends on hydro power for its electricity needs, with hydropower plants accounting for 53.1 percent of Mindanao’s generating capacity, according to data from the Mindanao Economic Development Council (MEDCO).

But low water levels derailed the operation of these power plants. The 727-MW Agus and 255-MW Pulangi hydroelectric power plants, for instance, experienced an 80 and 90 percent reduction in capacity, respectively because of the prolonged drought. The water level in Lake Lanao, source for most of the hydropower plants in Mindanao, has breached its critical level of 699.15 meters in early March and dropped to 699.08 meters.

In addition, reduced power supply due to depleted dams amid high electricity consumption because of the hot temperature brought about by El Niño has also pushed up power rates throughout the country. Meralco, for example, has increased its rates several times in the past six months, with the latest rate hike of 5.8 centavos per kilowatt-hour (kWh) announced in the first week of July, supposedly because of high generation charges at the Wholesale Electricity Spot Market (WESM). Overall, Meralco’s generation charge has already jumped by P1.84 per kWh between January and July.

Part 2

The double whammy of water and power crises – major issues that require urgent response and actions from President Benigno Aquino III

Policy issues

While the private companies and government agencies concerned have conveniently blamed natural phenomenon for the water and power crises, a deeper look will show that the conditions for the crises have been laid out and at the same time aggravated by wrong policies.

Both the water and power sectors have been deeply privatized, a process that was set off by Aquino’s mother, the late President Corazon Aquino in the late 1980s, accelerated by the Ramos and Estrada administrations in the 1990s, then continued and intensified by former President and now Pampanga Representative Gloria Macapagal-Arroyo.

Among the many promises made by the private water concessionaires and hyped by the then Ramos administration to justify the privatization of the MWSS was upgrading the decrepit water system infrastructure. Such upgrade intends to substantially reduce non-revenue water (NRW, or water lost due to leaks and pilferage) and help achieve universal and 24/7 water supply for an increasing number of households. In their original concession agreement with MWSS, the private water firms promised to provide universal access by 2001.

But until today, less than 60 percent of 790,000 households in Maynilad’s service area have 24-hour water service while only 74 percent receive water at 7-pound per square inch (PSI) or stronger pressure. More than half (53 percent) of water allocated to Maynilad continues to get wasted because of leaks and pilferage. Meanwhile, Manila Water, claims 99 percent water supply coverage in its service area but will not say how big the portion is with individual and direct household connection and those serviced by private water suppliers or “middlemen”. These areas served by a third party private contractor are often poor communities and most vulnerable to water supply disruption.

Amid water supply problems, Maynilad and Manila Water jacked up their rates tremendously, taking advantage of full-cost recovery mechanisms offered by privatization. Since MWSS was privatized, Maynilad’s basic charge has already soared by 449 percent and Manila Water, by 845 percent.

Private monopolies and manipulation

The power crisis that the country has been facing is also more man-made than natural. Plant shutdowns and supposed fuel constraints have combined with the impact of depleted dams on hydropower generation to substantially constrict available capacity throughout the islands. The implementation of Republic Act (RA) 9136 or the Electric Power Industry Reform Act (Epira) of 2001, which facilitated the privatization of power generation and transmission as well as deregulated the setting of power rates, has not addressed the country’s energy security issues.

Under Epira, hydro and other power plants have been privatized and sold to foreign and local firms (Photo from napocor.gov.ph)

Epira merely transferred the state monopoly on power to private companies, which has set the stage for various forms of possible abuses and manipulation. Cross-ownership, for instance, between distributors like Meralco and power producers made electricity rates more blurred than transparent.

Take the case of the WESM, which Epira created to supposedly allow freer competition among industry players but in fact has become a venue for speculation and rigging of prices. Among the so-called independent power producers (IPPs) trading in the WESM is First Gen Power Corp. that runs two natural gas-fired power plants (1,000-MW Sta. Rita and 500-MW San Lorenzo) and two hydropower plants (100-MW Pantabangan and 12-MW Masiway). The Lopez family, which controls 13.4 percent of Meralco, owns First Gen which aside from the WESM transactions also supplies 35.7 percent of Meralco’s power requirements.

Plant shutdowns

Furthermore, another Meralco owner, San Miguel Energy Corp. (SMEC) which has a 34-percent stake in the utility giant, also operates the biggest power plants in the country like the 620-MW Limay Combined Cycle Power Plant, the 1,000-MW Sual Coal-Fired Power Plant, and the 1,200-MW Ilijan Combined Cycle Power Plant. During the height of the El Niño, SMEC shut down, along with other privately operated plants, one unit of its Sual plant (with a capacity of 540 MW) due to “coal supply problems”. Its Limay plant also went offline for about three weeks early this year for “inspection purposes”.

The unscheduled outages in its power plants fueled talks that SMEC may have intentionally decommissioned the Sual and Limay to constrict power supply and jack up rates. After the SMEC plant shutdowns, First Gen followed suit with its own maintenance shutdown of its natural gas-fired Sta. Rita and San Lorenzo power plants in mid-February to early March.

The cost of generation has gone sky-high because of these plant shutdowns that artificially reduced available capacity. Meanwhile, power retailers like Meralco have been able to easily pass on the charges to unfortunate end-consumers. Under Epira, they are allowed to automatically adjust generation charges on a monthly basis through a cost recovery mechanism called Automatic Adjustment of Generation Rates (AGRA).

Is Noynoy up to the challenge?

Despite the recurring problems caused by its flawed policies on water and power, the previous Arroyo administration has continued the relentless march towards the neoliberal restructuring of these sectors. In fact, among what can be considered a midnight deal, is the April 28 bidding of the Angat Dam which was won by a South Korean power company. If this deal will be completed, consumers fear of more water supply woes even as the country’s energy needs are not necessarily guaranteed.

To be sure, President Aquino just inherited from previous administrations these problems besetting the country’s water and power security. The challenge, however, is will he overhaul the existing policy framework that has allowed the privatization and deregulation of the country’s utility sectors and created the mess we are in right now?

He will have the chance to do this in his first SONA on Monday when he outlines his vision for the country in the next six years. People who have been abused long enough by private water and power utilities, who suffered endless brownouts and lack of water amid skyrocketing monthly bills, will certainly be interested to listen.

Noynoy’s SONA and the People’s Challenge

Aquino should not use Arroyo’s corruption to conceal the inadequacies of his own policies and vision (Photo from mabuhaycity.com)

On Monday (July 26), President Benigno Aquino III will give his first State of the Nation Address (SONA). His speech before Congress is highly anticipated as people look for signals that the country will indeed chart a new direction in the next six years, one that breaks from the old path of poverty, backwardness, oppression, and exploitation.

But Aquino’s spokesperson told the media that his first SONA will be some sort of an exposé on “irregularities in the previous administration that were uncovered by the new Cabinet”. (Read here)

Filipinos, however, are more interested to hear what Aquino plans to do to immediately change the country’s course. It’s not that they do no want to know the real state of the nation. It’s just that they are already very much aware of the mess left behind and crimes committed by the Arroyo administration.

Obviously, no amount of legacy propaganda was able to conceal the corruption and abuses of Gloria Arroyo and her minions and the unprecedented political and economic crisis that the country is mired in today. Proof of this is Arroyo’s negative 17 percent net satisfaction rating in her last month as President and that she has been “steadily unpopular in the last six years”. (Read here)

Instead of an exposé, the SONA must describe how the Truth Commission will make Arroyo and others accountable. Aquino must provide indicators to measure the success of this commission such as specific targets and specific deadlines.

In other words, the SONA must answer the question “where do we go from here and how do we get there?” Aquino said he wants to take us to the daang matuwid and he will take us there without the presidential wang-wang. That is not enough.

Aside from bureaucratic corruption, there are other chronic problems that Aquino will have to take up in his SONA. Job scarcity, poverty and inequities in wealth distribution; insecurity in resources like energy, water, and food; fiscal deficit; agrarian unrest; human rights violations; climate crisis and environmental destruction; and erosion of national sovereignty to name a few are at unprecedented levels.

These are paradigmatic issues that are not answered by anti-corruption rhetoric. Unfortunately, we have yet to hear an unmistakable pronouncement that the failed policy frameworks of the past such as liberalization, deregulation, privatization, export-oriented, foreign investment-led development, etc. will be reviewed, much less abandoned, by the new government.

In his SONA, Aquino should not use Arroyo’s corruption to conceal the inadequacies of his own policies and vision for the country.

He must be challenged relentlessly to act on the people’s immediate and long-term demands for genuine reforms. (Read the People’s Challenge here)