The NAPOCOR

1
The NAPOCOR the Bataan Nuclear Power Plant
DebtsOdious Legacies of Power

• Ana Maria R. Nemenzo
• President, FDC

Freedom from Debt Coalition
2
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

3
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 NAPOCORs 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...

4
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.

5
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.

6
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.

7
BNPP Creditor Complicity Irresponsible Lending

• The U.S. Export Import EXIM Bank financed the
  project fully aware of Westinghouses 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

8
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.

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OBVIOUSLY ONEROUS

• 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 US76 per MWh, compared with US57 MWh
  for NPC.

Source Pascual, Contracted Power Failure, 2000.
10
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.

11
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 US0.165/kwh equivalent to
  almost P9/kWh compared to NPCs 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.

12
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 US2 million.

13
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

14
Impact of NAPOCORS Onerous IPP Contracts

• As consumers, Filipinos have to pay higher power
  rates.
• NAPOCORs 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/maturin
  g 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)

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• 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.

16
Thank you . . .
AUDIT ALL PUBLIC SECTOR DEBTS
17
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 Defendants
  Motion to Stay Pending Arbitration, CA No.
  88-5150 (US District Court New Jersey, 1988). 

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Main Sources References

• ______________ Republic of the Philippines
  Answers and Objections to Defendant
  Westinghouses 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.