Anti-ADB protest in Manila: Photo slideshow

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On May 4, activists from the multisectoral group Bagong Alyansang Makabayan (Bayan) trooped to Roxas Boulevard in Manila to protest the ongoing 45th meeting of the Asian Development Bank (ADB).

(Read Bayan’s news release here, and more about the ADB and its role in Philippine maldevelopment here and here)

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ADB: Anti-Development Bank

The Asian Development Bank (ADB) is holding its 45th annual meeting from May 2 to 5 in Manila. Some 4,000 delegates including finance ministers and central bank governors from ADB’s member-countries; as well as representatives of big business, international financial institutions (IFIs), transnational banks, credit rating agencies, global media, and even so-called civil society are attending the said event. With the theme “inclusive growth through better governance and partnerships”, the event will mark the 15th time that the ADB has held its annual meeting in Manila. Venues have been arranged at the Philippine International Convention Center (PICC).

The ADB was founded in 1966 and now has 67 members. It’s one of the global financial institutions set up by the industrial powers to fund their programs and projects in backward countries. Together with the International Monetary Fund (IMF), the World Bank and other IFIs, the ADB bankrolled numerous restructuring efforts that aim to liberalize, deregulate and privatize the economies of many countries in the Asia Pacific. These reforms have been implemented through huge and burdensome debts. The Philippines is a founding member of the ADB and has been hosting the bank’s main headquarters since its inception.

ADB’s 45th meeting is an opportune time for the Filipino people to register its strongest condemnation of the multilateral bank that has been funding numerous anti-poor economic reforms and destructive projects in the country.

Neoliberal offensive in energy

In the Philippines, ADB’s disastrous impact is most felt in the energy sector through the Electric Power Industry Reform Act of 2001 (Epira) and the neoliberal reforms implemented in the sector in the past two decades. The ADB started funding the power sector reforms through loans and equity investments to independent power producers (IPPs) as well as guarantees for bonds issued by the National Power Corp. (Napocor). Due to sweetheart deals with the IPPs, Napocor further went deeper in debt, which the ADB used to justify its total privatization.

As Napocor’s largest creditor, the ADB aggressively pressured the national government to fully privatize the state-owned power firm and enact the Epira. In 1994, it funded a study that eventually became the basis of the then Ramos administration’s blueprint for power sector restructuring. This blueprint took the form of an Omnibus Power Bill that was filed in 1996 that aimed to privatize Napocor and restructure the power industry. The Omnibus Power Bill would later become the Epira, a process that was bankrolled by the ADB’s $300-million 1998 Power Sector Restructuring Program (PSRP). To access the loan, the ADB listed 61 specific conditionalities that the government should follow, including designing content and legislation of the Epira.

Even Epira’s actual implementation is being funded by the ADB. Since 2002, the ADB has approved an estimated $1.3 billion in loans to support the various programs and projects under Epira. These include debts to guarantee the bond issuance and improve the creditworthiness of the Power Sector Assets and Liabilities Management Corp. (Psalm), which Epira put up to oversee the privatization of Napocor, and establish the wholesale electricity spot market (WESM).

Under Epira, electricity bills have soared amid energy insecurity such as the case in Mindanao. According to one study, the power rates for residential users in Manila and Cebu are the first and third most expensive in Asia, respectively. Even the supposedly “cheap” electricity rates in Mindanao are still much more expensive than the rates in more progressive Asian cities like Hong Kong, Beijing, Kuala Lumpur and Seoul. Since Epira was implemented, the rates of the Manila Electric Co. (Meralco) have jumped by 112% while the rates of the Napocor have increased by 95 percent.

Meanwhile, the lack of energy security is the result of government’s abandonment of its mandate to invest in the rehabilitation of existing plants and construction of new ones. Instead of ensuring that there is enough energy supply consistent with a long-term industrialization plan, government used its time and resources to dispose the generation and transmission assets of Napocor as mandated by Epira.

Anti-poor reforms

Aside from the neoliberal restructuring of the power sector, the ADB has also aggressively promoted various privatization and commercialization initiatives including in water utilities, irrigation, dam, and the National Food Authority (NFA), among others. These reforms have resulted in food insecurity and in skyrocketing cost of living.

Privatization is one of the major programs of the ADB in the Philippines, including the public-private partnership (PPP) initiative of the Aquino administration. ADB is the main funder of the Project Development and Monitoring Facility (PDMF), which is government’s revolving fund for feasibility studies for projects under the PPP scheme. The ADB has already committed $21 million for the PDMF.

Furthermore, the ADB also bankrolled a 1993-1994 study that became the basis of the destructive Mining Act of 1995. This program, which liberalized the Philippine mining industry, has paved the way for the further wanton plunder of the country’s mineral resources, the destruction of the environment, and dislocation of communities.

Oppressive debt

Worse, these anti-development and anti-poor programs have been funded by onerous ADB loans. The ADB is now the country’s single largest foreign creditor. As of 2011, the country owes the ADB around $5.84 billion, which is almost 10% of the total foreign debt of the Philippines pegged at $16.71 billion. Among the multilateral creditors, the ADB accounts for more than 50% of the country’s total multilateral debt. All in all, the country has accumulated the fifth largest debt from the ADB, accounting for about 8% of total sovereign lending.

Due to automatic debt servicing, a huge portion of the national budget is being siphoned off by debt servicing, leaving almost nothing for social services. For 2012, for instance, the Aquino administration is ready to spend P738.6 billion for debt servicing, including interest payments and principal amortization. This is much bigger than the P575.8 billion that government is willing to spend for education, social security, health services, housing, land reform, and other social services.

To smokescreen the harsh effects of the neoliberal reforms that it has been sponsoring and the lack of resources for social services due to debt servicing, the ADB – together with the World Bank – is also funding the conditional cash transfer (CCT) program of the Aquino administration. Under the CCT, government provides direct cash assistance of as much as P1,400 to selected poor families on the condition that pregnant mothers will have their regular checkup and school age children will regularly go to class. But aside from being highly temporary and limited, the CCT also further deepens the indebtedness of the Philippines. The ADB is funding the CCT to the tune of $400 million in loans while the World Bank is also lending $405 million for the program.

Strong protest

ADB’s theme of inclusive growth for its meeting this year reflects the main theme of the host government’s Philippine Development Plan (PDP) 2011-2016. Under the PDP, inclusive growth is supposed to be achieved by expanding the domestic economy by 7-8%, which will generate jobs and livelihood and alleviate poverty. But Aquino’s inclusive growth means the implementation of the same policies and programs of liberalization, deregulation and privatization that the ADB – together with the IMF, World Bank and other global imperialist institutions – has long been imposing on the country.

We should not let the ADB meeting pass without registering our strong opposition to its decades of intervention in Philippine policy making and to the many programs that it has bankrolled through odious debts that perpetuate the backwardness of our economy and the poverty of our people. (end)

The role of foreign lenders, investment banks, and credit rating agencies in Philippine power sector reform

EPIRA was the result of intense pressure from NAPOCOR creditors led by the Asian Development Bank (Photo from finchannel.com)

Last June 8, the Electric Power Industry Reform Act (EPIRA) of 2001 or Republic Act (RA) 9136 marked its tenth year of implementation. A day before, utility giant Manila Electric Company (MERALCO) announced that it is again hiking its generation charge by 51 centavos per kilowatt-hour (kWh). The rate hike underscored how EPIRA has harmed consumers with exorbitant electricity rates, which have now become the highest in Asia. Indeed, EPIRA is considered one of the most notorious legacies of the despised Arroyo administration that was even accused of bribing Congress just to get EPIRA passed a decade ago.

But Mrs. Arroyo and her allies in the legislature are not solely to blame because EPIRA was not just a product of internal and independent policy making. Rather, it was the result of intense pressure from the creditors of the National Power Corporation (NAPOCOR) who were wary that the heavily indebted state firm will not be able to pay them back. NAPOCOR lenders, namely, the Asian Development Bank (ADB), World Bank, and the Japan Export-Import Bank (JEXIM) and Overseas Economic Cooperation Fund (OECF) withheld committed loans for NAPOCOR unless EPIRA was passed. At the same time, they promised additional lending for the privatization and deregulation of the power sector. (JEXIM and OECF merged in 1999 to form the Japan Bank for International Cooperation or JBIC.)

Credit rating agencies also put pressure on the bankrupt government to pass the EPIRA while investment banks acted as privatization consultants. These institutions represent foreign corporate interests who also pushed for the passage of EPIRA to widen their profit-making opportunities in the Philippines through the privatization and deregulation of the power industry. Therefore, these foreign banks and corporations are as accountable as the Philippine government for the mess created by EPIRA.

Pre-EPIRA intervention

In fact, the restructuring of the power industry and the role that these creditors played did not begin with Arroyo’s EPIRA in 2001. EPIRA was in reality the culmination of neoliberal power reforms long pushed by multilateral creditors. Initial efforts started in 1987 during the administration of the late President Cory Aquino with her Executive Order (EO) No. 215. This EO allowed private sector participation in the construction and operation of power plants in the country. In 1990, Congress passed RA 6957 or the BOT Law that authorized the financing, construction, operation, and maintenance of infrastructure projects by the private sector.

These policies formed part of neoliberal structural adjustment pushed by the IMF and World Bank starting in the 1980s in poor countries facing a debt crisis like the Philippines. Among the stated objectives of structural adjustment was to supposedly reduce government deficit and spending through, among others, the privatization of state assets and functions. The ADB had supported these privatization efforts in the early 1990s through loans and equity investment to independent power producers (IPPs) as well as guarantees for NAPOCOR bonds.

Compounding the fiscal woes of government was the deteriorating power situation in the early 1990s, which government responded to with more privatization. In 1993, former President Fidel Ramos was granted emergency powers to enter into negotiated contracts with IPPs for the construction of power plants through the Electric Power Crisis Act or RA 7648. Then in 1994, RA 7718 which amended RA 6957 was enacted to further promote the participation of the private sector in infrastructure development, including power generation.

However, the ADB in a 1994 study (as cited in Sharma et. al., “Electricity industry reform in the Philippines,” Energy Policy, 2004) noted that despite these efforts at privatization, the power crisis continued to worsen. It argued that there was a need for further privatization because NAPOCOR, despite ending its monopoly in generation, still retained its monopsony position. Furthermore, domestic capital was considered insufficient to meet the long-term capital requirements of the industry while legal restrictions on foreign ownership were hampering investment.

Power restructuring program

As early as 1994, the ADB, NAPOCOR, Department of Energy (DOE), and Department of Finance (DOF) had already initiated policy dialogue concerning NAPOCOR’s difficulty in funding necessary generation and transmission projects “and the need for a radical change.” By 1996, an Omnibus Power Industry Bill was filed at Congress to privatize NAPOCOR and restructure the industry. The bill did not gain ground but was later re-filed in 1998 as the ADB approved a $300-million loan to fund the Power Sector Restructuring Program (PSRP) that was co-financed by the JBIC with an additional $400 million. EPIRA was the direct product of this $700-million loan from the ADB and JBIC.

According to the ADB, the PSRP will create competitive electricity markets, restore NAPOCOR’s financial sustainability, and achieve operational improvements and increased efficiencies. The loan was meant to help finance the adjustment costs of privatization such as the take-or-pay contracts with the IPPs and excess debts upon NAPOCOR’s privatization – or what will be called as stranded debts and stranded contract costs under EPIRA. Aside from the loan, the PSRP was also accompanied by two technical assistance (TA) grants from the ADB worth $1.32 million for a study on electricity pricing and regulatory practice as well as a consumer impact assessment.

The PSRP was part of a standby arrangement in 1998 between the Philippines and ADB, World Bank, and IMF. The World Bank’s commitment to the standby arrangement was a fast disbursing loan package of $500 million while the IMF standby facility was worth $280 million. Under the standby arrangement, the Philippine government committed to implement among others further fiscal reforms, financial sector and structural reforms, and strengthening the corporate sector, which included as a critical component power sector restructuring.

Access to the PSRP was structured in a manner that ensured strict compliance to a total of 61 specific conditionalities identified by the ADB in the loan program. These conditionalities were jointly designed by the ADB, World Bank, and JBIC. The $300-million ADB loan was divided into three equal tranches with the first tranche released upon loan effectiveness and compliance to 13 conditionalities while the second tranche was targeted for release in 1999 upon compliance to an additional 8 conditionalities (including the approval of creditor banks of NAPOCOR’s restructuring and privatization plan and passage of EPIRA), while the third tranche was targeted for release in the second half of 2000 upon compliance to a further 7 conditionalities (including the promulgation of EPIRA’s implementing rules and regulations). The rest of the conditionalities were expected to be complied with during the implementation of the program.

However, the passage of EPIRA was delayed and the ADB conditionalities were not met on time. Consequently, the second and third tranches of the PSRP were withheld by the ADB until the conditionalities were implemented by the Philippine government. The second tranche was released in December 2001 and the last tranche in November 2002.

In early 1999, NAPOCOR disclosed that its creditors had warned to cut-off new loans until the privatization of the state-owned power firm was implemented. The World Bank, for instance, indicated that it will no longer support NAPOCOR until the year 2000 while the OECF had advised that no NAPOCOR project will be included in its loan packages. The ADB, meanwhile, had imposed a “very strict” condition of 8% return on rate base (RORB) – a measure of profitability – for NAPOCOR to ensure access to loans. [“No new Napocor loans (Precarious condition worries foreign lenders),” BusinessWorld, March 26, 1999] It was estimated that over $1 billion in fresh foreign loans were riding on the passage of EPIRA. [“Int’l credit groups unsure about tack on Napocor loans,” BusinessWorld, April 13, 2000]

Pro-business lobby

Aside from the foreign creditors, other imperialist institutions had also added to the pressure to privatize NAPOCOR and in some cases even pushed for specific provisions that eventually became part of EPIRA. Credit-rating agencies like Moody’s Investor Service, Inc., for example, had made the privatization of NAPOCOR a pre-requisite for a credit rating upgrade for the Philippines. [“Napocor privatization needed for Moody’s credit rating upgrade,” BusinessWorld, December 13, 1999]

US-based investment banks Credit Suisse First Boston and Arthur Andersen, meanwhile, pushed for government to retain the debts of NAPOCOR instead of passing them to generating companies to make privatization more attractive. These same investment banks advised legislators not to abrogate the onerous purchased power adjustment (PPA) because it will “damage the country’s reputation in the international financial and political arenas.” [“Transparency necessary in Napocor privatization,” BusinessWorld, August 31, 2000]

Credit Suisse, which government tapped to develop a privatization plan for NAPOCOR, also pushed for cross-ownership in generation and distribution in contrast to the then power reform bill that banned all forms of cross-ownership. [“Legislator says Napocor sale consultant exceeded mandate,” BusinessWorld, August 18, 2000] The unbundling of rates supposedly for transparency as well as the dismantling of all forms of subsidy “as rapidly as possible” because “they send incorrect pricing signals in a free market and create economic inefficiencies” were also among the specific provisions in the EPIRA pushed by the Credit Suisse group.

Foreign investors had also publicly called on government to pass the EPIRA without delay. British power firms, for example, warned government that delays in the legislation of EPIRA were turning off investors. They also openly lobbied for cross-ownership, which was one of the debated issues then at Congress. These British firms were among the hundred or so foreign companies – mostly American and Japanese – that had expressed interest in the privatization of NAPOCOR. [“British investors ask gov’t to accelerate Napocor sale,” BusinessWorld, April 5, 1999]

Bankrolling EPIRA implementation

These creditors continue to fund the restructuring of the power sector even after the passage of EPIRA. The ADB, for instance, approved in December 2002 a partial credit guarantee (PCG) of up to $500 million equivalent in Japanese yen bonds to “help meet the cash flow requirements during the initial stage of privatization.” Specifically, the PCG was used to guarantee the bond issuance of the newly created Power Sector Assets and Liabilities Management Corporation (PSALM). EPIRA established the PSALM to oversee the privatization of NAPOCOR.

Also in December 2002, the ADB approved a $45-million loan for the establishment of the wholesale electricity spot market (WESM) and upgrading of critical transmission lines and substations, including a TA worth $0.8 million. JBIC co-financed the project with $45.5 million. It was followed by another TA from the ADB in 2004 worth more than $1 million to boost the confidence of private investors in the EPIRA by enhancing the efficiency of the Energy Regulatory Commission (ERC) and provide financial and technical advice to PSALM for privatization of the NAPOCOR.

So far, the largest power reform loan from the ADB after EPIRA’s enactment was the $450-million Power Sector Development Program (PSDP) approved in December 2006. In its August 2010 Completion Report, the multilateral agency said that the “ADB developed the PSDP to deal with the largest sources of the fiscal imbalance in the public sector caused by losses among the public power agencies. The PSDP was seen to reduce the losses at the (NAPOCOR) and make the (PSALM) more creditworthy, and to create the necessary conditions for the privatization of major power sector assets.”  In February 2007, JBIC provided co-financing for the PSDP worth $300 million bringing the total debt to $750 million.

PSDP’s specific objectives were (1) provide financial assistance to the government, through a program loan, to help meet part of the costs of power sector restructuring; (2) create the necessary conditions for substantial progress in privatization; (3) boost confidence in regulatory performance; and (4) smooth the transition to competitive markets. Part of the first objective is to help the national government finance the P200 billion in NAPOCOR debts that it absorbed under the EPIRA. In other words, government is servicing the debts of the state-owned corporation through additional debts.

Aside from bankrolling the implementation of EPIRA, the ADB also provided loans to private corporations involved in key privatization projects. In 2007, for example, it extended a $200-million loan to the Masinloc Power Partners Company Limited (MPPC), owned by the US-based AES Corporation, for the acquisition and rehabilitation of the Masinloc coal-fired thermal power plant. The 600-MW Masinloc plant was one of the largest privatized NAPOCOR-owned power plants. Incidentally, the ADB also provided $359 million in loans and Y12 billion in partial credit guarantee to NAPOCOR to build the Masinloc plant in the 1990s.

Meanwhile, Filipino taxpayers are not only burdened by the debts that bankrolled EPIRA. We are also oppressed by exorbitant power rates, energy insecurity, etc. that resulted from the neoliberal restructuring of the industry imposed on us by foreign institutions.

Read the “Ten years of EPIRA: What went wrong?” series

Part 1 – on electricity rates

Part 2 – on NAPOCOR debts

Part 3 – on monopolies and energy security