Disclaimer: This work has been submitted by a student. This is not an example of the work produced by our essay writing service.
You can view samples of our professional work here.
Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of UK Essays.
In Philippine context, privatization is used to refer to the policy which allows the government to disengage in activities which are not part of the government’s inherent function. This may be in many forms, such as the complete turnover of public corporations to the private sector and contracting services to private firms who has the necessary resources to manage it, or the government would just turnover certain services to the private sector but it would still be under some government regulatory procedures and incentives. This privatization mostly occurs within the framework of economic globalization. By economic globalization, it means that privatization is used as a measure to pursue the globalist restructuring of the state and to further develop the market access which mostly benefits the business elites of a state and of course, the transnational corporations (TNCs) (UP and Stiftung 91-93).
Privatization, along with liberalization and deregulation, is also a part of neoliberal globalization which aims to produce surplus products within the economy and also huge capital for production. In the process, private sector continues to have a big role over the public sector activities, made possible by direct transfer of ownership and management and by the elimination of the laws that promotes the public interest (deregulation), and through the reduction of budget for the basic services, that in turn leads to the graver degradation on the access on public services of the people. For example, in privatizing public utilities like the water and power sector of the Philippines, many detrimental factors are experienced by the people, particularly the government workers under the corporation because they were displaced as private companies turned to control those sectors. The poorest sector of society also was immensely affected since those private companies seek to get high profits which leads to very high prices at the people’s expense (IBON xi-4).
During the Marcos regime, a decree on creation of government owned and controlled corporations (GOCCs) was made through Presidential Decree (PD 2029) and later on through PD 2030, a policy was made which promulgates privatization. By the time of Cory Aquino’s regime, this decree was first implemented through Presidential Proclamation 50 on the 9th of December in 1986 (TransCo).
In 1990, Aquino also signed 6957 or what we call as the Build-Operate-Transfer (BOT) law which has let and approved the intervention of the private sector in the financing, contracting, operation and also maintenance of infrastructure projects. But in 1993, when Ramos assumed the presidency, he signed RA 7718 amending the BOT law and further allowed the full involvement of private sector in crucial government development projects. Through this act, various forms of privatization schemes have evolved (TransCo).
Many reasons were presented by the government regarding the privatization of the GOCCs. To enumerate some, they said that through transferring these assets to the private sector, it would yield a better efficiency in its operations. Furthermore, it was also stated that the government needed to collect more revenues for government spending to improve the economy, and this can only be done with such move. Also stated as reasons by the government is that first, it would lead to increase in investments which will boost up the economy and will also help to develop markets for capital generations. Through lessening the budget for public services in GOCCs, and selling those which are poorly performing and money-wasting, the government expected to decrease our budget deficit and also to recover its expenditures (PSALM).
START OF NAPOCOR PRIVATIZATION
When the National Power Corporation (NAPOCOR) was created in 1936, our government has mandated it to generate and transmit sources of energy while letting the private sector to be in charge of its distribution. But it 1980s, the government has started to gradually entrust the entire power sector to private companies. From former Pres. Aquino’s Executive Order (EO) No. 215 issued in 1987, the power generation sector of NAPOCOR was started to be deregulated. By the power of build-operate-transfer scheme, EO No. 215 also gave way to private firms to establish and manage power plants in the country. This situation was further strengthened when Ramos took over the presidency. RA 7648, the Power Crisis Act of 1993 was passed and encouraged more private companies to partake in the power generation sector of NAPOCOR. Later in 1984, Expanded BOT law was also passed and had given Ramos to have “emergency powers” which allowed him to make contracts, most of which were foreign corporations, regarding the construction, repair and other technical maintenance of NAPOCOR without the need to undergo it through a public bidding (IBON 82-83).
Due to the contracts of mostly 10 to 25 years made with the foreign companies, NAPOCOR was obliged to pay the power contracted to them whether they had actually produced or consumed power or not. This is what is referred to as the “take or pay” provision.
According to this provision, NAPOCOR needs to buy 75-80 percent of a firms’ power capacity even though it didn’t really produced or consumed it. This in turn made NAPOCOR to pass the obligation to the local consumers even though they really hadn’t consumed even a small part of it, which is really a great burden since it takes about 60 percent of the total power available at the economy. Of course, this is clearly seen when power distributors such as Meralco get wholesale power from NAPOCOR and pay for it which is the Purchased Power Cost Adjustment (PPCA) that corresponds it (IBON 83-84).
Aside from this Purchased Power Cost Adjustment or PPCA, NAPOCOR has also passed the Fuel Cost Adjustment (FCA) fees to the power distributors due to the need to do its obligation to supply enough fuel to the firms or power plants in which it had its long-term contract with, regardless of the fluctuations in the price of oil or fuel in the global market or even in the domestic domain. These two costs of NAPOCOR and wholesale costumers further make up the Fuel and Purchased Power Costs Adjustments or FPCA (IBON 84-85).
Furthermore, the contracts made by NAPOCOR to the independent power plants (IPPs) are in dollar rates. This only means that charges between the two entities are affected by the foreign exchange rates or peso-dollar rates to compensate the change in payout because of the continuing weakness of peso currency as against dollars.
Due to the fact that these IPPs are owned by foreign companies, they are selling their power to NAPOCOR by almost $20 per megawatt hour (mWh) higher than the power sold to them by their own power generators. Of course, these very high rate would translate and reflect to the additional fees charged to the end-consumers of electricity through the purchased power adjustments (PPA) without their power to refuse against it even though in 2002, a review made by the government showed that most of these IPPs has either legal or financial issues and are disadvantageous for the government itself.
During the Arroyo administration, this PPA was still not stopped in operations of NAPOCOR since it was a great source of income for the government, although we know that the local consumers are the ones who intensely suffer from it; and also of course not to jeopardize the privatization of NAPOCOR and to continue attracting foreign corporations to invest and participate in such measures of the government.
Among other transnational corporations (TNCs), NAPOCOR’s IPPs incorporate energy sector’s giants such as Marubeni, Kawasaki, Mitsui, Chevron, and Enron (IBON 85).
According to Meralco, PPA is just one cost adjustment mechanism that is passed on to the local consumers, since there is also the CERA which is intended so that Meralco will be able to recuperate the changes in operating costs and repayment of principal debt mainly brought about by the changes in foreign exchange rates in which the contracts are bound.
Due to this, Meralco claims that only little of the consumer charges go to them, since it primarily goes to NAPOCOR as PPA and to the government as franchise tax. But, apparently it turns out that these might be made up stories or complains since Meralco as a power distributor was also allowed to have its own IPPs by virtue of former Pres. Aquino’s EO 215. Meralco has indeed three IPPs which are among the country’s largest companies which supply almost half of its power requirements. This only means that Meralco, having its own IPPs actually earns a lot of money from the PPA. It has also made use of it to make a way out of the controversy arising from the fact that it has monopoly control over power distribution. By this, it was also able to control and manipulate the computations regarding the IPPs which are remarkably its sister companies. For example, First Gas which is one of its IPPs and partly owned by Meralco itself, was used to make anomalous transactions in PPA since Meralco can actually protect and cover the supply cost from the said IPP even though in reality it doesn’t even delivered one kilowatt of power to Meralco (IBON 86-89).
Meanwhile, we can clearly see that the results of letting private corporations participate in the power industry is contrary to the rationale behind its approval, which among others is to relieve the government from its burden on funding the setting up of power generating plants (UP and Stiftung 115-116). Instead of it happening, the reverse had taken place. NAPOCOR has left in charge of paying the debt obligations of the IPPs assured by state guarantees which were made to further attract investors. Through those incentives, including long-term power contracts, IPPs were assured that they will have return on investments whatever happens.
Electric Power Industry Reform Act (EPIRA)
Through the Electric Power Industry Reform Act or EPIRA which is RA 9136, payment for stranded costs of NAPOCOR or the costs due to stranded debts and contracts, were passed on to consumers as a universal charge along with the cost of restructuring the power industry. This was implemented during the Arroyo administration when she declared that the government must not shoulder this expense but must be recuperated through a universal charge.
To further clarify some previously mentioned terms, stranded debts as part of the stranded cost is the obligations that will be left out by NAPOCOR once it is sold to private individuals, while the other one, the stranded contract cost is the difference from the price of electricity from the wholesale market to be set by EPIRA itself and the price from IPPs. Due to this very large cost of NAPOCOR’s obligations which are partly paid by the government through debt from foreign sources, very high priced bonds were sold by the government to finance its principal obligations mainly due to those long-term contracts. So it is obvious that it has only made the government and the people suffer from paying them instead of getting away from funding large amount for power generators, while the private sector like the transnational corporations (TNCs) and other local elites were getting more and more income from it each year making it as its “milking cow”. Also it is evident that PPA has only intensified the dependence of government to private sector to pay its foreign debts and its grave situation of national bankruptcy which clearly impacts detrimental effect to the poor Filipino citizens (IBON 89-91).
Actually, in 2001, the Arroyo administration had pushed EPIRA to be approved for a great loan to be released, the $900 M ADB Power Sector Restructuring loan which was filed since 1998. IMF had also played a part on its approval, since it made it a condition for it to release a $300 M rehabilitation loan for the Philippines since 1999. By this, we could clearly see that the government had pushed it not to improve the condition of accessible power service to the people, but the adverse that favored the private companies and further strengthened their control over the power service.
Transmission Corporation (TransCo)
Along EPIRA in 2001, the creation of a National Transmission Corporation (TransCo) in 2003 under NAPOCOR was also signed into law. In line with this, the Arroyo administration had also pushed for its privatization by the mandate of the same aforementioned law. This TransCo as a GOCC is basically in charge of operating and managing the power transmission system of the country which will link power plants to the electric distribution utilities throughout the Philippines (TransCo). In simple terms, it will be taking control over the transmission and sub-transmission functions, assets, as well as the liabilities of NAPOCOR. TransCo, in taking over the sub-transmission assets will manage it until they are finally disposed into their proper distribution utilities which in turn will hold its planning and overall maintenance of those assets. But, as like NAPOCOR, through EPIRA, TransCo is mandated to be privatized through either an outright sale or a management concession contract lasting for about 25 years. The Department of Energy (DOE) and the Department of Finance (DOF) were basically in charge in the planning and setting up its transfer to private companies (Cook and Mendoza, 9; 68).
As again an expectation of the government, from privatizing TransCo, it expects a high income which will be used to pay the NAPOCOR’s remaining debt that is extensively big which will in result lessen or decrease the government’s public sector deficit. Aside from that expected revenue from its sale, the government also expects that when a technologically advance and proficient private concessionaire will take over the transmission line, it will result to more efficient and world class network. It says that due to the crippling energy crisis, people are hard to be provided with a dependable and secured supply of electricity at low rates, so privatization of such sector will be a necessary response to it, while attracting more investments at the energy division (Perez).
But, the government actually marginalizes the stake of local power sector by doing this. First, they can be exploited since through the privatization of TransCo, it will surely lead to a monopoly of the private business. Since in EPIRA, the cross-ownership of distribution, generation, and transmission under NAPOCOR is allowed, this only means that through the profit-seeking goal of the monopolies over those areas, power rates will still remain indefinable (TransCo).
TransCo’s privatization clearly manifest the government favoring TNC’s as well as local elites like the Lopez Group of Companies in their reinforced power over the Philippines’ power sector. According to the president of PSALM or Public Sector Assets and Liabilities Management Edgardo del Fonso, it would seem not attractive to foreign investors if the assets of TransCo will not be franchised nationwide (PSALM).
Actually, based on a primer released by IBON Foundation in 2003, there were already at least eight TNCs which had expressed their interest in the privatization of TransCo, not to mention that these TNCs are among the world’s largest. And some of those TNCs were already on hold of some local power industries’ operations. But due to certain limitations of our constitution, they were only allowed to operate up to 40 percent of the power sector, but then again PSALM had admitted that later on, it is possible that there would be some restructuring to be done to allow greater share of private sector on power service. This only means that possibilities are open on the total foreign control of our local power sector at the expense of the national interest and welfare.
As of now, this transmission system under NAPOCOR known as the “crown jewel” of the government’s power privatization program is already at the hands of the private sector. On the 12th of December in 2007, PSALM has conducted a successful bidding for TransCo’s 25-years concession contract to be able to maintain its functions on transmission. On the year 2008, it finally announced that TransCo’s transmission function will be transferred under the management of the National Grid Corporation of the Philippines (NGCP), the successful bidder who offered a US $3.950B for the said concession after the three failed attempts in the previous years (PSALM).
This was despite the opposition of various consumer and militant groups like the People Opposed to Warrantless Electricity Rates (Power) and the Bagong Alyansang Makabayan (Bayan) because for them it was a crucial step for the government to take since the burden soon will heavily fall at the local consumers when the winning bidder will make a way to recover its loss and investments at the earliest time possible. As Legazpi cited in her article, according to Tapang, a convener of Power, “(Transco’s) infrastructure provides a highway for electricity and other uses. Whoever controls it can impose a ‘toll fee’ on users of this highway. In the hands of private interests, there is always the potential for abuse in the name of greater profits”. Bayan has also released their statement through their secretary general in the person of Reynato Reyes, adding that TransCo is of strategic importance to our economy and so it must remain as state-owned and it is basically a prejudice on the part of the government to continue to such action due to the fact that this will lead to a great load to be carried on by ordinary consumers (Legazpi).
Amidst those oppositions, unfortunately on that same year also, the congress had approved a bicameral resolution which will grant franchise of TransCo to NGCP, legitimizing it as a private unit to run a public service. By December of that year, former Pres. Arroyo signed the law which will officially grant franchise to NGCP, RA 9511. Following that year, in 2009, TransCo was formally turned over to PSALM in a ceremony held at PSALM’s office in Makati on January 14, 2009. The event significantly indicated the NGCP’s authority to start TransCo’s operation under its new management with Atty. Moslemen T. Macarambon as its first new president. Currently, it is headed by Rolando T. Bacani, president and CEO (TransCo).
After the sale transaction of TransCo, NGCP has paid almost US $1B to PSALM as provisioned by the contract as its straight payment for its operation. PSALM is also confident that after TransCo’s privatization and turning over of NGCP on its operation will eventually result to an efficient operation and effective maintenance of our transmission network, while counting on the successful record and wide experience of the consortium and its foreign partners (PSALM).
After TransCo’s successful bidding and private transfer of ownership, PSALM is still opening its invitation for bidding of other power plants such as those at Naga, Cebu, the Naga Power Plant Complex, in Tongonan, Leyte, the Unified Leyte Geothermal Power Plants, and in Pililia, Rizal, the Malaya Therman Power Plants (PSALM).
In 2010, many assets under power generation have been sold as well as its contracted capacities. In spite all of those, the PSALM and the government still pushes for further privatization of the power sector.
EFFECTS OF PRIVATIZATION
When the government resort to privatizing state owned corporations especially those involved in economic services, this basically turn to an impact which is as destructive as the liberalization of trade and investment. As a Third World country, taking this crucial step marginalizes the interest and welfare of the people and other economic development programs and projects for the country. The people are more vulnerable and are easily affected by the impact of having no jobs and the inaccessibility of basic social services. After some years of the promise of improved effectiveness and efficiency of these privatized sectors by the government to the people as the reason behind the privatization of such basic public services, the supposedly good results are yet unseen but on the contrary, public menaces and difficulties are experienced of the people on that particular service (IBON 131-134).
First of all, the government did not had a financial relief on privatizing public services, since like in NAPOCOR and other corporations, the government becomes more bankrupt and indebted to private or foreign investors since privatizing assets only provide short-term or one-time big-time revenue, but in the long run, results to a great dependence on private sector due to the debts incurred after privatization. it has also resulted to a lesser allocation of budget for other social services due to the automatic appropriation of budget to debt servicing mandated by the law. Some privatized assets by the government were also not as considerable since sometimes they are key economic players in the country’s economic growth. Moreover, in the case of privatization of NAPOCOR, the government had shouldered the huge liabilities left when it was privatized, or some parts of it. This results to a huge public funds being used to pay for its interests and amortization. Through state guarantees, the government bore the obligations of the IPPs, which through long-term contracts are assured by the government to have return on its investments no matter what. In short, the government is no more than losing in this kind of program and gradually is put into a profound bankruptcy. This is one of the main reasons behind the fiscal crisis experienced by national government in 2004 and still contributes to the worsening condition of the economy.
On improved efficiency
One point that is to be remembered regarding privatization is that having the private sector does not necessarily mean that the previously owned and controlled corporation of the government would yield better efficiency. In the first place, they were not created to be profit-oriented but to provide accessible support and basic service to the people. This is critical to the consumer’s situation, since if the market fails, there should the government to secure them against it and continue to provide them its responsibility. Supposedly, our government expect that when private corporations took control over it, they will invest in its improvement, but just like the MWSS privatization, this is not what is actually happening but they use their revenues to expand their properties around the globe, in short they are not concerned of efficacy of operation of the corporation, but more concerned on how to gain more profits.
People’s access to basic services
When GOCCs are privatized, people can expect spikes in their rates and inaccessibility and unaffordability of the basic service that were previously provided to them by the government in low and accessible prices. Of course this is only logical since private corporations’ main objective is no other than to get more profit. We can expect this effect to be mostly aggravating to the poor and marginalized Filipino citizens who also try their best to survive with their very small income that doesn’t increase in real terms and growing joblessness throughout the country. In fact, almost 20 percent of an average household income is spent to pay their electricity bills alone. Because of this, some of the poor Filipino families had chosen to cut their electricity connection to lessen daily budget costs, or even on some families their supply was cut due to being not able to pay for their high electric bill.
Up to now, many the typical Filipino consumers are not able to get basic services at lower or “reasonable” rates since as like the government said, those privatized institutions should have been more efficient due to improved infrastructure implemented by private firms. But, it just bloated up their rates that the people could hardly pay for it, just like in the power service of NAPOCOR, cost recovery mechanisms were passed to the people’s responsibility. So through that, we can already conclude that when market forces rule without any regulation from the government promoting public welfare, the consumer’s situation is largely at stake and worsened.
Because of this we can clearly say that where is the “choice of power” and “power choice” that the government said and promised to its consumers if the power industry and its functions will be privatized? Clearly, it shows that it was merely a false and deceiving statement.
Aside from these detrimental impacts, privatization also increases level of unemployment especially in underdeveloped nations like the Philippines. This is due to the displacement of workers from the previous state-owned corporations or in other way, through contractualization of those somehow lucky worker’s left at the privatized corporation. In this way, workers are put in an acute situation while the private corporation continues to gaining more profits and cutting production costs. They are also aggrieved through cutting their wages without their power to stop those private firms.
In the restructuring and privatization of NAPOCOR, more than 2,000 of its employees had already lost their job and currently, as threats of further privatization of electric cooperatives are on the way, this number will possibly increase. Aside from the employees of NAPOCOR who lost their jobs, there are also many workers from industrial and commercial sectors who lost their jobs due to closure of their companies which one of the factors which caused it is the very high electricity rates that they have lesser production that cannot compete with other industries either around the country or outside. Factory workers also don’t get wage hike since their employers insist that they are spending more and more on operation and maintenance costs as industrial electricity rates also sores up.
Actually last July 2009, more than 1,000 former workers of TransCo were not accepted by NGCP to continue their work on it after 5 months of transition period, despite having EPIRA assurances that were not that effective afterwwards. This was due to the high NGCP standards in accepting new employees according to the Mindanao Transco Employees Union or Mintrea.
Before TransCo was privatized, the consortium of the private companies to take over it said that they will not let those more than 5,000 employees of TransCo to lose their jobs instead they will again hire them even privatization is already done. But according to Walder Revellar, North Luzon chapter president of Mintrea, most of the TransCo employees suffered retrenchment even before when NAPOCOR was started to be privatized when reorganization within the sector began. Most of them were of old age but has not reached the age of retirement on the new private administration of TransCo due to forced leave since according to them, they don’t have the full capacity to absorb all of the previous workers of TransCo. Being too old to be rehired, workers like them as a result had difficulties in finding new jobs because of their age constraint. Some of the previous employees also are at young age, which are said to be too young to be retired, that could have done great job on TransCo if they were not removed from their jobs as Revellar stressed out also. Unfortunately, despite the worker’s complains they couldn’t anything about that concern because it has been transferred already to the private sector (Inquirer).
After of all the results of TransCo privatization, it only appears to us that the government is just making a way to decline its social responsibility to the state and most especially to the people in providing the basic services that it must provide in the first place. Public utilities and services play an important role in protecting the poor and marginalized sector of society so letting the “free-market” and the market forces operate on its own on those assets would defy the public assets’ original intent like the power sector in generating efficient and affordable electricity throughout the country. It had also meant a lesser government intervention to the economic and social activities of the state, and so it results to people’s situation becoming worse over time as private sector continues to exploit our resources and earn super-profits. This should not be tolerated since first and foremost, these are all done at the people’s expense.
Cite This Work
To export a reference to this article please select a referencing stye below:
“Thank you UK Essays for your timely assistance. It has helped me to push forward with my thesis.”
Related ServicesView all
DMCA / Removal Request
If you are the original writer of this essay and no longer wish to have the essay published on the UK Essays website then please.