PHILIPPINES: A Litany of Unresolved Issues in Power Privatization ABNER P. ELERIA. President NAPOCOR Employees Consolidated Union (NECU)

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1 PHILIPPINES: A Litany of Unresolved Issues in Power Privatization ABNER P. ELERIA President NAPOCOR Employees Consolidated Union (NECU) Presented at: Public Services International (PSI) Regional Workshop on Quality Public Services 1-33 December 2009, Manila, Philippines

2 About Privatization of Philippine Power Sector Power privatization is part of structural adjustment program of international financial institutions like World Bank and IMF. Even before passage of 2001 electricity law, the government already embarked on efforts to privatize power sector in mid-1990s, thru Build-Operate Operate-Transfer projects with Independent Power Producers (IPPs( IPPs).

3 Asian Development Bank (ADB) is lead donor in Philippine power reforms 1998: Power Sector Restructuring Program ADB loan of US$300M Japan Bank for International Cooperation (JBIC) co-financed with additional US$300M Loan conditionalities include:» Enact Electricity Law» Unbundle & privatize National Power Corp (NPC) 2006: : Power Sector Development Program ADB continued support to NPC privatization thru $450M loan

4 EPIRA (Electric Power Industry Reform Act) Enacted in 2001 Unbundled & privatized National Power Corp (NPC) Created PSALM to sell NPC s power plants & IPP contracts Created TRANSCO to take over NPC s transmission function, and later be privatized Reduced role of NPC to missionary electrification Opened gates for electricity trading under Wholesale Electricity Spot Market (WESM) Provided legal basis for termination of all NPC employees (Feb 03)

5 Restructured Power Industry GENERATION NPC NPC IPPs (PSALM) Private IPPs TRANSMISSION TRANSCO (formerly NPC) DISTRIBUTION (wires) & supply Private utilities (e.g. MERALCO, VECO) Electric coops dispatch SUPPLY * aggregator CONSUMER residential commercial industrial sell WESM Power trading (PEMC) buy Buy min. 1MW FDC

6 Electricity Rate (per kwh) 2001 (pre-epira) 2007 (6 yrs after EPIRA) 2008? (with stranded cost recovery) P5 P10 P11 P15?

7 Power rates are high and will remain high Philippines among top 10 highest rates in world 1 st in Asia, industrial rates (2006) 3 nd in Asia, residential rates (2006) Rates will remain high due to: Continuous rate increases granted to private utilities to ensure their high profits Huge costs of take-or-pay IPP contracts Removal of subsidy to residential users from industrial / commercial users

8 Status of NPC Privatization (ao end-oct 2009) PSALM has privatized 26 generating plants (Total capacity = 3,900 MW) 1,700 MW of contracted capacities also auctioned off to IPP Administrators (the first of its kind in Asia & perhaps globally) PSALM reached 81% privatization level, and is aiming 100% in next 2 years NPC share in total power generation now only 13%

9 New private owners/operators Old oligarchies (Lopez) Political cronies (Aboitiz( Aboitiz, Razon/Monte Oro) Japanese firms (Sumitomo, Marubeni) Korea & China state-owned utilities (KEPCO, China State Grid) New players San Miguel beer/food business DMCI construction business Un-bundling in the public sector --> Re-bundling in the private sector e.g. Lopez & Aboitiz distribution & now generation companies

10 Generation Share per Utility/Owner (as of end-oct 2009) Generation Share per Utility / Owner (as of Oct 09) DMCI 4% Salcon Power 2% Others 7% Lopez Group 23% Masinloc Power (AES) 4% San Miguel Energy 4% J-Power-Sumitomo 5% Aboitiz Group 14% KEPCO 10% NPC 13% Team Energy 14%

12 Massive job losses due to retrenchment, reorganization, termination Retrenchment, reorganization : NPC has 17,000 employees : NPC has 13,500 employees Termination (as provided by 2001 EPIRA law) : All NPC employees (8,530( 8,530) ) terminated: > 3,800 employees rehired (with NPC) > 3,400 employees rehired (with TransCo) > 30 employees rehired (with PSALM) > 1,300 employees not rehired

13 Rehired NPC workers with lower working conditions & pay NPC workers who were rehired after termination were forced to accept employment contracts at: position grade levels lower than what they previously enjoyed 25-30% reduction of salaries & benefits Increase in contractualization and service agreements at NPC

14 High Court: NPC employees were illegally terminated Sep 06: : Supreme Court ruled that NPC Board Resolutions terminating NPC employees in Feb 2003 were void and without legal effect because they lacked votes for adoption Sep 08: : Supreme Court (SC) ruled with finality: Immediate reinstatement of NPC employees Payment of P34.7B++ in backwages,, wage adjustments to NPC employees Still awaiting enforcement August 17, 2009: Recognition by ADB that backwages and other financial claims of NPC workers as recognized by SC form part of legitimate costs of restructuring of Philippine Power Sector

15 Outstanding claims of NPC workers Outstanding claims: (to date) 1. DAMA (Supreme Court) case: P 34.7B++ 2. COLA: P 8.4B++ 3. WAIVE (step increment): P 594M++ TOTAL: P B++ Court cases still awaiting action Damages due to illegal termination: Based on remaining years of service: Average = 5 yrs / employee = P 50,000 (average salary / mo) x 12 mo / yr x 5 yrs / employee x 8,530 employees = P 26B (conservative estimate) Claims chargeable to ADB

16 Non-recognition of NPC unions Unions rights to representation and collective bargaining undermined a violation of Core Labor Standards No full recognition by NPC management Non-remittance of union dues since 2005 to date Non-recognition of unions by PSALM Lack of transparency & no consultation with unions: NPC reorganization plans Employees issues in drafting of EPIRA (and IRR) Sale of NPC plants etc

17 No workers protection in sale of NPC plants PSALM does not recognize bargaining power of unions, weakening the unions PSALM does not obligate buyers to retain existing workforce, hence more job losses PSALM does not include Manual of Employees Benefits (MEB) as part of bidding documents, citing huge costs But labor costs is only 3-5% 3 of total costs PSALM does not consult with unions before sale of any plant in violation of EPIRA No overtime beyond 8 hrs in privatized plants a violation of Philippine Labor Laws

18 Other issues in sale of NPC plants Efficient and earning plants are first to be privatized (e.g. hydro plants) Hydropower and geothermal plants are also being sold (cheaply-produced produced power and part of national patrimony) Sale is illegal, still within 10-year prohibitive period under EPIRA Non-profitable power plants remain with NPC Undervalued assets, Buy 1, Take 1 1 Nasipit Power Barge (117) is sold at cost of only spare parts Maco Power Barge (118) payable thru operation income Down-payment of 25-yr TransCo concession payable from 2 years of operation income NPC still subsidizing privatized plants Fuel supply subsidy to SPC Island Power Corp in operation of Panay Power Diesel Plants 1 and 2 (from March 2009)

19 New OMA (Feb 09) Feb 2009: : NPC & PSALM signed Operations & Maintenance Agreement (OMA) April 09: : NPC unions filed case in court against OMA provision in violation of EPIRA Still awaiting decision

Campaign vs privatization of Agus-Pulangi Hydropower Complex Contributes 55 % of the Mindanao Power Requirement All Plants are ISO Certified Manned

20 Campaign vs privatization of Agus-Pulangi Hydropower Complex Contributes 55 % of the Mindanao Power Requirement All Plants are ISO Certified Manned by Competent Managers and Employees Multi-awarded Hydro Plants Integrated Water Management and Dispatching One ECC and EMP Conditionalities Compliances

21 Very profitable operations of Agus-Pulangi REVENUE RESULTS OF OPERATION (For the period January to July 2009) AGUS 1 P 344,657, AGUS 2 949,529, AGUS 4 920,382, AGUS 5 415,634, AGUS 6 1,275,422, AGUS 7 281,315, PULANGI 1,199,674, RORB % (Return-On On-Rate Base) 7.55 % % % % 1, % % % TOTAL P 5,386,613, [GOCC : 12% RORB]

22 Generation / Production Cost of Agus Plants (Average) VERY CHEAP POWER 2007 = 0.62 (P / kwhr) 2008 = 0.43 (P / kwhr) Average Mindanao Grid Rate = 2.71 (P /kwh/ kwh)

23 People of Mindanao Oppose the Privatization of Agus and Pulangi Complexes Instead: Extension of the Moratorium on privatization (under EPIRA) for another 10 years OR MINDANAO POWER CORPORATION

25 HUMAN RIGHT TO WATER: Campaign vs privatization of Angat Hydro Aside from power generation, Angat is also major source of potable water in Metro Manila Metropolitan Waterworks and Sewerage System (MWSS) and local government officials oppose sale by PSALM of Angat Hydropower plant Nov 09: : Commission on Human Rights (CHR) against Angat sale Human right to drinking water is fundamental for life and health. Sufficient and safe drinking water is a precondition for the realization of all human rights. The right to water is more fundamental and primary over the need for power. Privatization of Angat Hydro Electric Power Plant will put reliability of water supply for Metro Manila at risk. Management of Angat is better left to MWSS being a government body and considering the amount of public interest involved.

26 NPC Unions need support Support multi-sectoral campaign against privatization of remaining NPC power plants (e.g. Agus-Pulangi, Angat hydropower) which are efficient, cheaply produced, and part of national patrimony. Support case to be filed at ADB for harm and damages inflicted on NPC workers and their unions in ADB-assisted power sector reforms using ADB s Accountability (or inspection )) Mechanism. Repeal EPIRA (2001 Electricity Law) which treats electricity as economic commodity and not a public good, and will not provide Quality Public Services.

ASIAN DEVELOPMENT BANK

ASIAN DEVELOPMENT BANK PCR: PHI 31216 PROGRAM COMPLETION REPORT ON THE POWER SECTOR RESTRUCTURING PROGRAM (Loan 1662-PHI) IN THE PHILIPPINES July 2004 CURRENCY EQUIVALENTS Currency Unit Philippine peso