Philippine Power Scandal Illustrates Flaws
Walden Bello
Focus on Trade, No. 49, April 2000
What was supposed to be a milestone in the history of privatization in the Philippines has now become a massive scandal. Two parliamentarians, Etta Rosales and Rene Magtubo, revealed that after the recent vote by the House of Representatives to privatize the National Power Corporaton (Napocor), their offices received an unsolicited contribution of 500,000 pesos ($12,500) each. The two representatives had voted against the privatization, leading to speculation that those who voted for it received much more.
The payoff scandal cannot, however, be seen as simply another case of corrupt politics. It must be viewed against the background of the tremendous pressure to privatize the state-owned energy enterprise coming from extern al donors, in particular the Asian Development Bank (ADB).
As a condition to the government's accessing a $300 million energy sector loan from the Bank and a $400 million loan from the Miyazawa Fund, the ADB wanted the state energy enterprise privatized as quickly as possible. The ADB's Power Sector Restructuring Program document dated Nov. 25, 1998, was blunt. Release of the second tranche of the loan was contingent on the condition that the Borrower shall have enacted a law, the Omnibus Power Industry Law, to govern the power industry. From the ADB's perspective, the government was way behind schedule; it had wanted the law passed by June 1999.
Was the ADB Involved?
Did the administration of President Joseph Estrada resort to short-cuts - that is, buying the votes of Batasan members - to satisfy the
ADB? How much did the ADB know about the bribery? In fact, the question must be asked: did ADB staff participate in the bribery attempt to clear away obstacles to its most ambitious program in the Philippines? This question is by no means preposterous since the Bank itself has admitted to investigating 55 allegations of corruption involving its staff and executing agencies in the Asia-Pacific region as of December 1999.
Even if the ADB is cleared of direct complicity in the bribery, it cannot be absolved of creating the conditions that led to what now appears to be a wholesale effort to buy Congress. The conditions simply were not there for a clean privatization to take place. Splitting Napocor into a few private oligopolies ('Generating Companies') in the climate of uncontrolled crony capitalism that now pervades the government-business partnership under Estrada was asking for trouble.
The ADB should have heeded its own 'Anti-Corruption Policy Memorandum' issued in June 1998: Particular care must be taken in dealing with issues of privatization... Preliminary research... indicates that, when done properly, privatization can... help to lower the level of corruption.
However, in many countries the privatization process has often been fraught with allegations of bribery, theft, and embezzlement.
It continued: To avoid this problem, it is critical that transparent, unbiased and fully contestable procedures be utilized in the sale of state assets. When the sale involves a natural monopoly, it is also important that capable, independent regulatory agencies be established to provide
adequate oversight prior to privatization. Issues of best practice involving corporate governance will also be an important component of Bank loans and TA [technical assistance] grants addressing issues of privatization, corporatization, and public enterprise management.
None of the abovementioned anti-corruption safeguards or others were put in place prior to pushing the legislation for privatization.
Rushing Privatization
Indeed, so rushed was the Napocor privatization that other points raised by critics were largely left unanswered, in particular the telling
argument that consumers would end up paying the bill for Napocor's stranded assets, so that instead of going down, electricity rates charged to most residential consumers were likely to go up after the privatization.
In fact, the ADB admitted that the impact of the restructuring and privatization process on electricity consumers has not yet been
quantified, nor has the need to retain safety nets to protect the poor and the underprivileged. For an agency that is said to be on top of energy economics, it is amazing that the ADB did not prioritize the conduct of such a study prior to rushing the privatization of Napocor since many previous efforts to privatize or deregulate power in other countries ended up with the consumer being screwed.
But back to the corruption issue: it is ironic that an ADB project is now trapped in a massive corruption scandal since the agency prides itself with being the first multilateral development agency to have a Board-approved policy statement on good governance. The Bank, notes one document, affirms that corrupt and illicit behavior is a serious brake upon the development process. The Bank rejects the argument that corruption's beneficial effects outweigh its negative consequences... The Bank welcomes the growing focus upon anti-corruption issues as part of its broader effort to advance then principles of transparency, predictability, accountability, and participation under its governance policy.
What is to be Done?
Now is the time for the Asian Development Bank to put its money where its mouth is. It should launch an immediate investigation of its staff to see if they were involved in the bribery of the Batasan.
It should also immediately signal the Philippine government that passage of the power bill will not guarantee delivery of its loan and the Miyazawa loan owing to the gross violation of the Bank's anti-corruption policy involved in the payoffs.
But equally important, the ADB should cease pressuring the Philippine government to secure immediate passage of the power bill and allow independent agencies to conduct a more comprehensive and thorough investigation of whether or not privatization will really benefit Filipino consumers or merely deliver state assets at firesale prices to well-connected local and foreign monopolists.
Copyright 2000 Focus on the Global South
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