ITOGON, BENGUET—It may be a relatively small power plant, but the 100-megawatt Binga hydroelectric plant in Itogon, Benguet overflows with corruption.

In the course of three administrations in the last seven years, a politically well-connected businessman got the National Power Corporation (NPC) to agree to onerous terms to rehabilitate the aging dam, leaving the government to lose US$58.3 million and the 36-year old dam in worse shape than it was before its supposed rehabilitation.

All these could be traced to one well-connected Filipino-Chinese businessman: Catalino Tan, the godson of Narciso Ramos, father of former President Fidel Ramos. During the Ramos administration, Tan used his political connections to wangle contracts for the Binga rehabilitation.

Tan lost his clout during the Estrada administration, when he fell from the good graces of the deposed president. Now that Ramos, his patron, wields some influence in the Arroyo government, Tan is trying to regain control of Binga-or, if this doesn't push through, collect $350 million in what he calls "unrealized income" from the NPC.

The Binga experience is reflective of the travails of the power industry. The energy sector is hostage to politics. Political connections—rather than integrity and track record—determine who gets a power contract.

The power industry has remained largely uninvestigated. Even if corrupt deals are sometimes exposed, they are allowed to continue. The industry also allows national "emergencies"—from earthquakes to power outages—to provide openings for corrupt deals.

Plans to rehabilitate the aging Binga plant started during the Aquino administration, when the 1990 earthquake damaged and filled the plant's reservoir with millions of tons of silt and debris. Then in 1993, when the country reeled from power outages, the 15-year Binga rehabilitate-operate-leaseback (ROL) contract was signed with a Chinese-owned company, the first contract to be negotiated under the Electric Power Crisis Act of 1993.

The ROL contract, to be undertaken by the China Chang Jiang Energy Corporation (CCJEC), called for the dredging of 3.5 million cubic meters of silt and debris and the annual maintenance dredging of 500,000 cubic meters of the same. It also called for, among others, the construction of a P250- to P500-million sluice tunnel as the permanent solution to the siltation problem.

The sluice tunnel is supposed to act like a toilet underneath the Binga reservoir, flushing down the natural accumulation of silt and debris to a depository downstream. CCJEC would operate the plant for a monthly lease of $210,000. The NPC, in turn, would pay the company $0.0449 inclusive of VAT per kilowatt-hour of power produced.

Seven years later, the Binga dam contains more silt and debris than it ever had, threatening its life span. The project also suffers from a nearly 40-percent slippage, meaning it has failed to complete 40 percent of what it was supposed to do under the contract.

Unbelievably, when the Binga ROL suffered a 65-percent slippage in 1996, more than the legally allowable 15 percent slippage to justify a contract termination, the NPC—with the blessings of Malacañang—continued to pay the contractor. A year later, when the slippage reached 73 percent, the NPC even entered into a supplemental contract that favored the delinquent contractor.

The NPC also removed the requirement to construct the sluice tunnel. Moreover, it reduced the annual amount of silt and debris to be dredged from 3.5 million to 375,000 cubic meters for the first six years and 200,000 cubic meters for the remaining years.

Worse, the NPC agreed to pay more per kilowatt-hour of power produced. Instead of $0.0449 inclusive of VAT, it paid $0.042 net of VAT, or at least $0.0015 more.

Before the 1997 supplemental agreement, the NPC signed a 1996 Memorandum of Agreement that was supposed to resolve the problems brought about by the power meters used to determine the amount of power generated by the plant.

From 1993 to 1995, the contractor's power meter registered a higher power generation than that of the NPC power meter. Theoretically, owing to a natural transmission loss, the contractor's meter, which was installed at the plant, should register less compared to that of the NPC meter, which was installed farther away from the plant.

Although the NPC claimed the contractor's meter was inaccurate, it still entered into the agreement make payments based on the supposedly inaccurate power meter, resulting in an overpayment of at least US$3.5 million.

The key to understanding the logic—or lack of it—behind all these onerous deals is Catalino Tan.

"Logically, if the supplemental agreement requires the contractor to do less, then the purchase price should also be less. If the contractor's power meter is found to be inaccurate, then excess payment should be reimbursed. Kaso hindi, eh (But this was not what happened)," said a Binga plant engineer.

"This only shows you how malakas (well-connected) this Catalino Tan is with the government," the engineer added.

Tan could not be contacted for this story. Calls and requests for appointments made at his office and residences in Baguio and Manila have not been answered or returned. His children said he could not be reached.

Tan has no track record in power projects. His known business, apart from supplying boots to the military, is a recruitment agency conveniently named Lakas Tao, the same name as the political party that catapulted Ramos to the presidency.

Tan is also well known to be a major contributor to Ramos's presidential bid in 1992 and the senatorial bid of LAKAS candidates in 1995.

In 1996, when Benguet Congressman Ronald Cosalan filed House Resolution 663 calling for a review and investigation of the Binga ROL contract and Catalino Tan, then President Ramos was overheard by a congressional aide saying to Cosalan: "Ronnie, bakit mo kinakalaban yan? Kaibigan natin ito. Malaking naitulong sa atin (Why are you fighting this man? He is our friend. He helped us a lot.)"

Nothing happened to Cosalan's resolution. In 1994, then congressman now Justice Secretary Hernani Perez denounced the CCJEC for "milking and milking" the government. Nothing came out of that speech either.

To be fair, the NPC, as early as November 1993, four months after the signing of the Binga ROL, threatened to terminate the contract due to the contractor's failure to abide by the ROL's timetable. In 1994, then Energy Secretary Delfin Lazaro seriously entertained the possibility of termination. In 1995, the NPC task force created to evaluate the Binga ROL formally recommended the contract's termination, but this was never acted on.

Binga insiders and former associates blame Tan, who they say was so influential, he could enter the office of whoever was the NPC president even without an appointment. "Tan could go straight and talk to Ramos in Malacañang without an appointment," said a former Tan associate. "During social gatherings, he could go straight to Ramos without passing security."

Tan's influence was evident even before the signing of the Binga contract. A trail of memos and letters showed that the NPC actively negotiated with CCJEC at least a year before the formal Solicitation of Project Proposal was advertised in early 1993.

On paper, Tan's name never appeared in any corporate document prior to 1997. The Binga ROL was originally signed by Yu Zhian on behalf of CCJEC, a wholly-owned Chinese company that prides itself with having rehabilitated the famous San Men Xia hydropower station in China.

In 1995, amidst charges that it was involved in dollar salting, CCJEC assigned and transferred its interests to the Binga ROL to CCJEC-Philippines, a newly formed corporation whose stockholders included Thunder International Incorporated of Taiwan and Filipino citizens Chan Bun Pen and Jesse D. Alto.

On July 13, 1995, Yu Zhian, apparently acting on behalf of Tan, formally informed the NPC of the new company representatives to the Philippines. These included Alto and retired Brig. Gen. Mario Espina, who was chief of the AFP Logistics Command when both Alto and Tan were still suppliers of military boots and uniforms.

Starting September 2, 1995, however, CCJEC officials wrote letters to inform the NPC of the relief of Yu Zhian and his unauthorized actions and appointments. They also filed a formal complaint with the Securities and Exchange Commission (SEC) to revoke the license of CCJEC-Philippines.

The NPC ignored the letters from China, however. It waited until the SEC, in a December 12, 1995 decision, dismissed the complaint.

Suddenly, in 1997, when the supplemental agreement was signed, the Binga ROL had a new contractor-the Binga Hydroelectric Plant, Incorporated (BHEPI). It was the first time Catalino Tan's name appeared, as BHEPI president and signatory to the agreement.

Espina, who served as BHEPI vice-president for operations from 1995 to 1997, said Tan actively participated-albeit behind the scenes-in winning the Binga ROL since 1993. He said Tan brokered the contract from the start, using his Malacañang connections to win the contract for CCJEC, wangle a favorable deal and, eventually, take over the contract under BHEPI.

"Catalino Tan brokered the whole deal. He was behind all these," said Espina, who resigned after learning how Tan was bilking the government through Binga. "He wanted to transform Binga into a white elephant so he could pocket the money himself," he added.

NPC documents corroborate Espina's allegations. Then NPC President Francisco Viray, in a December 8, 1993 letter to CCJEC, acknowledged a meeting with Tan about the Binga ROL. This was exactly a month after the NPC first threatened to terminate the contract due to the contractor's non-compliance with the agreed work schedule.

On May 29, 1995, or the day the NPC task force formally recommended the contract's termination, the NPC met with Tan, Alto and Espina. Tan, during the meeting, asked NPC to give them a "second chance to prove its worth."

A Binga insider who remained in close contact with Chinese engineers up to 1998 further corroborated Espina's allegations. Tan apparently caused the corporate squabble inside CCJEC after the Chinese government refused to pay him a US$8-million "service fee."

"Catalino Tan asked CCJEC to pay him US$8 million so he would remain quiet at para hindi na siya manggulo. Tatahimik na lang daw siya (and not create trouble. He promised he would just shut up)," said the Binga insider.

What Catalino Tan failed to get from the Chinese, he apparently got from the NPC. On paper, the NPC paid BHEPI under Tan some $33 million for the power generated from 1995 to 1999. This is on top of the $25 million paid to CCJEC from 1993 to 1995, when Tan remained behind the scenes.

Espina estimated that Tan, from 1995 to 1997 alone, pocketed at least P600-million of the firm's profits.

But Tan's luck ran out when Estrada was elected in 1998. The same tactics Tan used to win the contract under the Ramos administration were the same tactics used against him: powerful Malacañang connections and behind-the-scenes corporate manipulations.

This time, the well-connected businessman was Estrada crony Jaime Dichaves. In October 1998, Thunder International, in a petition filed at the SEC, disputed BHEPI's right to enter into the supplemental agreement with the NPC. It claimed rightful ownership, being the majority stockholder of CCJEC-Philippines. The NPC discontinued payment for power produced and BHEPI abandoned the project. The SEC, while resolving the dispute, formed a management committee to temporarily take over the Binga ROL.

Former SEC Chairman Perfecto Yasay Jr. said Tan, to win the corporate dispute, apparently tried to get into the good graces of President Joseph Estrada through Guia Gomez and then executive secretary Ronald Zamora. Estrada, at first, favored Tan. But things turned sour.

Said Yasay: "In (two of) my conversations with (then President Estrada) on the matter, he was explicit in telling me that he did not want Catalino Tan favored by the SEC decision. In fact, in one conversation (the first), he told me in the presence of Secretary Zamora, Manloloko yan si Catalino Tan. Niloko niya si Zamora. Niloko niya ang pamilya ko at niloko niya ako (He is a cheat. He cheated Zamora. He cheated my family, and he cheated me.)"

Yasay couldn't say what the deal between Tan and Estrada was about. Sources inside Binga and NPC, however, said Estrada wanted Tan to transfer majority of BHEPI's shares to Gomez and Zamora. Once this is done, the SEC would then act in favor of BHEPI.

Tan refused. Estrada was infuriated and, according to Yasay, pressured the SEC-through Dichaves-to rule against Tan.

"It was Mr. Dichaves who constantly followed up the case with the SEC (during my suspension) for the President… When I was reinstated by the Supreme Court, it was also Dichaves who told me that the former president wanted me to intervene in the case and ensure that the SEC would not favor Tan," said Yasay.

On December 14, 2000, the SEC dismissed the complaint of Thunder International after an amicable settlement was reached with BHEPI.

Now that a new government is in power and Ramos retains influence, NPC and Binga employees fear that Tan would be exerting his influence again. The NPC is now actively studying the possibility of re-bidding the project.

Meanwhile, in a letter dated February 14, 2001, Binga employees forwarded their complaint against Tan to Arroyo. But on March 8, Tan-together with Commander Jaime Lucas, a former official of the Reform the Armed Forces Movement, and accompanied by two military escorts carrying M-16 rifles-visited Binga to supposedly inspect dredging equipment left behind by BHEPI. The fax message announcing his visit bore the name LAKAS.