The country had its first Build-Operate-Transfer contract in 1987, with Hopewell Holdings Ltd. of Hong Kong tycoon Gordon Wu as the proponent. Hopewell constructed two 100-megawatt gas turbine plants in Luzon.

The venture was deemed so successful that the government was encouraged to enter into more BOT power contracts and even enact the BOT law (Republic Act 7718) that would allow Napocor to tap the private sector more effectively. Past and present government officials agree that the early Hopewell contracts provided the model for all future power deals with the private sector.

But Napocor soon found itself with more IPP contracts, and more power, than it could handle, and what was once thought of as a brilliant solution to the country's power needs have now become problems themselves. At the time it was accumulating IPP contracts, the government had also let the private Manila Electric Co. (Meralco) to build its own power plants, which later exacerbated an energy oversupply.

Such a situation, however, was unseen in 1991, when Hopewell won the contract to build a coal-fired power plant in Pagbilao, Quezon. Three years later, it won the deal for a similar plant in Sual, Pangasinan.

Yet while Hopewell started doing business in the country under the Aquino administration, it was during Ramos's time that it expanded its power generation business. Wu, who is a close friend of Ramos, even put up the British Virgin Islands company Consolidated Electric Power Asia (CEPA) to bid for the Sual coal plant.

Yet even before construction on the 1,000-megawatt Sual plant began, it was already attracting special scrutiny. Minutes of an April 1994 meeting of the Investment Coordinating Committee (ICC) of the National Economic and Development Authority (NEDA), for instance, show that various officials noted that the construction of the plant violated NEDA Board Resolution No. 17 that said the Masinloc coal-fired power plant in Zambales would be "the last coal-fired power plant to be constructed that will be designed for 100-percent imported coal utilization."

There was also concern, as early as that time, that Sual would lead to excess power. Even now, a 1,000-MW plant is considered huge, considering that the entire daily demand for electricity in the whole of the Luzon grid is less than 6,000 MW. Also at that time, the First Private Power Corporation, a power-generation firm owned by the influential Lopez family was already planning to put up its own power plants, also totalling 1,000 MW. The NEDA ICC proposed that the planned capacity of Sual be lowered, other IPP contracts be rescinded, and old power plants be decommissioned or retired to avoid excess capacity.

Curiously, though, minutes of NEDA ICC Technical Board meetings reveal that even while the Sual project was being evaluated on April 27, 1994, Ramos had already set April 30, or just three days later, as its groundbreaking date. Even more curious is that the approval of the NEDA board, which is headed by the president, is recorded as having been made only on May 10, 1994, 10 days after the groundbreaking.

But a bigger controversy would erupt in 1995, this time over Pagbilao. According to the contract, Hopewell could not yet charge the government for capacity fees and operational expenses because Napocor's transmission lines linking Pagbilao to the rest of the Luzon were not yet in place.

Instead, a former Napocor official revealed, Hopewell charged the state power firm various fees simply by declaring the plant completed, sans inspection and testing. By doing this, Hopewell was forcing Napocor to put up transmission lines as soon as it could. Otherwise, Napocor would have to pay penalties.

Former government officials recall that at the time, Wu's projects in China were in dire financial straits and the mogul apparently wanted money fast. He got what he wanted, since Napocor had to pay penalties for the delayed installation of transmission lines. Napocor, however, got Hopewell to reduce its obligations and extend the contract for Pagbilao.

Asked about his well-known friendship with Wu, Ramos acknowledged that he once helped the tycoon obtain a favorable court ruling for the Pagbilao project. The former president related that Wu had received two temporary restraining orders (TROs) preventing the groundbreaking activities for the plant.

"What did I do to help?" Ramos recounted. "We researched the laws and found there was a Marcos decree prohibiting a TRO on any major project of public interest."

He said he instructed then chief legal counsel Antonio Carpio to bring up the matter to the Supreme Court, which would then issue an order to the lower courts. With Ramos's intervention, the TRO was lifted. Ramos said, "Tulong ko kay Gordon Wu 'yan, pero tulong ko rin sa tao (That was how I helped Gordon Wu, and also the Filipino)."

Wu's Pagbilao project would give birth to other contracts. In September 1994, the Ramos government got the Philippine National Construction Company (PNCC) to sign an agreement with Hopewell Holdings to extend the South Superhighway all the way to Pagbilao, where an international and domestic seaport was also proposed to be built. Local opposition to the projects, however, forced government to shelve them.

In the late 1990s, the U.S. energy company Southern Energy Co., later renamed Mirant, would acquire Wu's shares in Pagbilao, Sual, a Navotas power barge, and the Toledo Power Plant in Cebu, among others. The companies now managing Pagbilao and Sual are called Southern Energy Quezon and Southern Energy Pangasinan. These two companies, as well as the mother firm Southern Energy Holdings, were listed among the top 10 net income-earning corporations in the Philippines in 2000.

At the other end of the spectrum is a small IPP that supplies the needs of firms inside the Cavite Export Processing Zone (CEPZ). But the relatively tiny size of the 63-megawatt diesel power plant has not made it less susceptible to involvement in alleged anomalies.

The plant is run by the Magellan Cogeneration, Inc. (MCI), a wholly owned subsidiary of Covanta Energy Philippines, Inc. Covanta's parent firm is Covanta Energy Corp., a publicly listed company that recently filed for bankruptcy in the United States.

The Cavite plant, which is currently being sued by its clients, probably has the most well-documented violations in an IPP contract. Nongovernmental organizations have also made an example of the IPP to justify their refusal to pay high PPA costs.

The MCI contract is among the IPPs entered during the implementation of the Electric Power Crisis Act of 1993 that gave state agencies the authority to enter into negotiated deals. Former Ramos energy officials said the contract enjoyed strong backing from a brother of then chief legal counsel Carpio. MCI hired the Carpio sibling, but later fired him after his influential brother no longer worked in Malacañang.

An inter-agency government review committee recently singled out the MCI Cavite plant for buying cheaper electricity from Napocor through its One-Day Power Sale (ODPS) window and then turning around and reselling them to the CEPZ locators at a higher price.

Napocor's ODPS window caters mainly to customers with self-generating units or who buy their own requirements from their own IPPs. The committee, which submitted its report to President Arroyo earlier last month, said that MCI stands out as "the only Napocor IPP availing itself of the ODPS." It said this violates MCI's contracts with Napocor and the Philippine Export Zone Authority (PEZA), which oversees CEPZ, that require the IPP to generate its own electricity.

Since the plant is located inside an export zone, the IPP also enjoys additional sweeteners such as fiscal, tax and other economic incentives on top of a Napocor fuel subsidy. Yet the MCI plant has been experiencing operational and financial difficulties in honoring its contract, said the Citizens Review Commission on the IPPs, a network of NGOs that conducted a parallel IPP review.

From January 2000 to December 2001, a summary of its grid and island operations showed the MCI plant trips each time it has to generate enough power to meet the CEPZ demand. To service CEPZ efficiently, the IPP buys power from Napocor. As of last year, the IPP owes Napocor P248 million from its ODPS availment, an amount it is disputing.

Covanta Energy president Oliver Cruz justifies the plant's practice: "Many people seem to be forgetting that ODPS is good for Napocor. ODPS enables Napocor to sell electricity from idle capacity and revenues generated directly offset liabilities from the PPA."

But the IPP's critics say Covanta does not even pass on to its clients the savings it derives from buying cheaper electricity. Last January, PEZA terminated its contract with MCI/Covanta Energy after foreign locators in the CEPZ complained about the unreliable power supply. Covanta, however, hit back with a TRO. The case is still pending.

In the meantime, anti-PPA groups are protesting the exclusion of the Manila Electric Co. (Meralco) from the government review. After all, they say, Meralco's franchise area is home to a quarter of the entire population and its IPPs are now starting to eat into Napocor's market.

Meralco was heavily engaged in power generation until the late president Ferdinand Marcos seized the assets of the Lopez family who owns the utility and gave the monopoly to Napocor.

The Aquino government, through Executive Order 215, allowed private-sector participation in power generation again. This was one of the many concessions Aquino gave the Lopez family, whose members were her late husband's fellow exiles in the U.S. during the martial-law years. Previously just a buyer of Napocor power, EO 215 turned Meralco into a direct competitor of the state utility.

The Ramos administration only helped make Meralco an even stronger company. Barely two months into office, the Ramos government lent its credit standing to the Lopez firm when it asked the Asian Development Bank (ADB) for a $138-million loan to expand and upgrade Meralco's distribution system.

Since the amount was higher than allowed under ADB's private sector window, the government, through the Philippine Export and Foreign Loan Guarantee Corp., acted as loan guarantor.

Then in 1994, when prospects for the development of the Camago-Malampaya natural gas find in Palawan were becoming rosy, the Ramos administration turned to Meralco to provide a market for half of the 3,000 MW it expected Malampaya to generate. The other half was taken up and bid out by Napocor.

Almost simultaneously, Meralco entered into a 10-year contract with Napocor, agreeing to supply the private distributor 3,500 MW until November 2004.

The natural gas supply offer enabled the First Philippine Holdings Corp., the holding company of all the Lopez group's generation assets, to put up a joint venture with United Kingdom's British Gas, which runs the Sta. Rita and San Lorenzo plants in Batangas. Aside from First Gas, Meralco also has an IPP contract with Quezon (Philippines) Power Corp., a joint venture with InterGen and Covanta Energy.

In 1995, a year after it signed the agreements with the government, Meralco rose to become the country's highest grossing company, next to Napocor. While Napocor's net profit went down 47 percent that year, Meralco's surged by 21 percent to P4.4 billion.

At the time, the Ramos administration did not seem to mind the potential conflict arising from having Meralco both as a monopoly distributor and generator of electricity that could pose stiff competition to Napocor. In the run-up to the 1998 presidential elections, however, the Energy Regulatory Board (ERB) suddenly ruled that Meralco had been overcharging its customers from 1994 to 1997.

The business community criticized Malacañang for the ERB decision, which it saw as politically motivated. The Lopezes were supporters of presidential candidate Alfredo Lim, who had Sergio Osmeña III as running mate. Osmeña is married to a Lopez. Ramos, meanwhile, was supporting the presidential bid of House Speaker Jose de Venecia.

Meralco's finances since then have been corroded by the ERB decision. The company has taken the case to court, where it is now pending. But despite its financial woes, Meralco is still faring much better than the rest of the Lopez companies, which have been taken a heavy beating in the last few years. The fear now is that Meralco is being forced to subsidize its sister companies and passing on the cost to its customers.

To some extent, this may already be happening. Data culled from Meralco's latest petition with the Energy Regulatory Commission (ERC) showed that while First Gas did not generate any electricity from January 2001 to January 2002, Meralco paid it nearly P15 billion for that period. The amount was passed on to customers in the Meralco franchise area as higher PPA.

First Generation Holdings Corp. president Peter Garrucho Jr. said the Meralco payment represented "capacity fees" that the private distributor was obligated to pay under its agreement with First Gas whether the IPP was used or not.

Meralco president Jesus Francisco also admitted as much, but said that the situation arose from the apparently oversupply that had Napocor using from October 2000 to end-2001 its own IPPs instead of Meralco's Sta. Rita natural gas plant.

Despite the fact its IPPs were not dispatched for the entire 2001, First Philippine Holdings was still the biggest saving grace to its parent firm Benpres Holdings Corp.'s bottom line. As of March 2002, it booked revenues of P5 billion or 20 percent higher than the previous year's level.

In its proposed debt restructuring plan, Benpres said it is counting on revenues from its power generation business to provide the main source for the group's future income streams.



Copyright © 2002 All rights reserved.
PHILIPPINE CENTER FOR INVESTIGATIVE JOURNALISM