• Corruption of a different sort

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    Ben D. Kritz

    Ben D. Kritz

    Have a conversation with an executive in any industry sector here in the Philippines, and you will invariably hear of two major “obstacles to business development”: The high cost of electricity and corruption. The latter issue of course has captured the public’s attention through the recent drama involving the “pork barrel” scandal, and has become even more salacious with the implication of the Aquino Administration’s deep involvement in the shenanigans managed by Janet Lim-Napoles when President B.S. Aquino III personally attended to “Ma’am” Janet’s “surrender” at Malacañang last Wednesday night.

    As appalling as the “pork barrel” scandal already is and as likely as it is to provoke even greater public anger, it is in a very real sense no more than a snapshot of an entire institutional culture gone bad. “Electricity” and “corruption” are usually expressed as two separate problems by frustrated business executives and investors, but the electric power sector is perhaps the best example of how corruption is inextricably tangled in the basic systems and functions of Philippine society.

    My fellow Times contributor and industry insider Mike Wootton touched on a part of the fundamental rottenness of the electricity sector in his column from last week (“Time for a change,” August 28) when he related some of his observations about the dysfunction—and resulting public displeasure with—of the Palawan Electric Cooperative (Paleco), which is only one of a few dozen electric cooperatives on the brink of failure around the country. In the case of Paleco, a particular issue—apart from the cooperative’s unmanageably high debts, unacceptable system loss rates, low collection rate, and poor physical condition of its distribution infrastructure, all problems which are unfortunately common to many areas of the country – is the contracting, over public objection, for electricity supply from more expensive coal-fired plants rather than the hydroelectric power which is abundant in Palawan and which has been offered at a much lower price.

    In Mike’s view, the problem is largely one of poor governance. For example, Paleco’s Board of Directors is manned by a typical spectrum of local people—“bank manager, fisherman, farmer, guy who has a filling station concession, etc.”, as Mike describes it—which is probably okay given the “public ownership” concept behind cooperatives, but which requires qualified managers to ensure the enterprise actually runs as an efficient business. In Paleco’s case, the critical position of General Manager, which ideally should be filled by someone with an industry background, is instead occupied by a former accountant for Unicef and the Government Service Insurance System (GSIS).

    Even if a cooperative is able to put a competent manager in charge, continuity seems to be another huge problem. The troubled Albay Electric Cooperative (Aleco), whose customers suffered the indignity of being briefly disconnected from the national grid at the end of July for huge unpaid bills incurred by their service provider, has replaced its General Manager 12 times since 1991. Aleco, which is ostensibly under the supervision of the National Electrification Administration (NEA) pending sale to a private enterprise, currently has three different people answering to the title of General Manager, according to NEA and Energy Regulatory Commission (ERC) contact information.

    But, you might say, being unqualified or even incompetent is not necessarily the same thing as being corrupt. And you would be wrong. Electricity is a basic public service, and for the nation as a whole, a component of strategic infrastructure. The accountant may be accepting a position that requires some fairly robust technical and broad-based management experience knowing she is completely unsuited for it or honestly overestimating her own abilities; either way she is wrong, but people are what they are, which is why institutional systems like electricity generation and distribution have oversight mechanisms, rather than relying on the controls of people’s own goodwill and conscience. This is where the country’s systems really fall apart, where the corruption really happens, and where it has become acute under the stewardship of B.S. Aquino.

    The sin of the Aquino Administration, which is not limited to the electric power sector, is in maximizing the flaws of dysfunctional processes that already existed when President Noynoy’s “straight path” traveling circus rolled into town. Under former Presidents, even the ethically-challenged Joseph Estrada, there was at least some effort made to make appointments to key positions functionally justifiable —patronage, yes, but granted to people whose presence, for the most part, was at least somewhat plausible. The recently-appointed President and CEO of the National Power Corp. (Napocor) is a good example: On the recommendation of Energy Secretary Carlos Jericho Petilla (whose qualifications for the important post as head of the DoE include being a former data management consultant, hereditary former governor of Leyte, and relatively recent defector from the Lakas-Kampi-CMD coalition to the Liberal Party), President Aquino appointed Ma. Gladys Cruz-Sta. Rita to head Napocor. Sta. Rita’s CV does include a stint as Chairman of the Philippine National Oil Company subsidiary PNOC Development and Management Corp., which looks good on paper until one realizes that DMC’s sole activity is to manage two real estate developments, one in Pasig that is not quite five hectares in area, and a larger one in Rosario, Cavite. More recently, Sta. Rita has served as the Provincial Administrator for Bulacan and (surprise, surprise) Secretary-General of the Liberal Party.

    The system—in the case of the electricity sector, the damnable Electric Power Industry Reform Act (EPIRA) of 2001—is not of Aquino’s creation, but he has done absolutely nothing to correct its inequities that have led to a poorly-regulated, inefficient utility infrastructure controlled by a narrow group of protected, rent-seeking private conglomerates. Inequities such as, for example, having the Energy Secretary serve as the Chairman of the Philippine Electricity Market Corp. (PEMC) that manages the Wholesale Electricity Spot Market, a for-profit entity for which regulatory oversight is the responsibility of an agency (the ERC) that is actually subordinate to DOE.

    Corruption is not simply theft, even though that may be its most obvious manifestation. Allowing an abusive framework to exist and taking advantage of it for personal, political ulterior motives is corruption as well, and of a much greater sort: The cost of lost opportunity, waste of personal and business income due to artificially-inflated power prices and unreliable supply, and future costs from the inefficiency and inadequacy of power infrastructure development has not been calculated, but it could be, and it would be breathtaking in its scale.

    And exactly none of it will be solved, much less be addressed, by focusing on Janet Napoles and her sticky-fingered legislative collaborators. While that issue is indeed important and should not be overlooked in even the smallest detail, if anything good is to come of resolving it, it must be a catalyst for taking a hard look at the entire Philippine system. Then-candidate Aquino promised to do just that prior to May 2010, but he has apparently found it to his liking; that is a point of view that is wrong, and desperately needs to be changed.

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    2 Comments

    1. Sir i am from Poland my wife filipina we have business in Manila, EIFS contractor this is house thermal insulation. In Philippine sir electricity bills pay only poor people tax system is create for that.Please look official website BIR and find ; chapter 7 -allowable deduction; expenses necessary and ordinary.All deduction is about 38 % of income.All business who use plenty electricity have electricity for free because tax deduction stands free for reach people free for business.Some examples hotel sogo or astrotelor any different- monthly income 1.5 mln peso electricity bills half million and all half million is possible put in deduction ,still less like 38 %.Hotels owners not interested green technology not interested thermal insulation buildings because electricity is for free.The same all shops and malls electricity for them is for free ,tax deduction stands budget of country payment for aircon resign take tax.Next example reach person have big residence use plenty aircon and opposite have any business like print shop ,bakery etc. Enough the same counter for house and business and electricity for aircon free,big tower offices again tax deduction again free, who pay ?poor tax payer because government resign tax from reach.60% all electricity in Philippine is use for aircon and business not pay for this luxury from own pocket.My proposal cancel deduction for electricity and give deduction for thermal insulation wall and roof,change windows for double glazing.In Europe all new buildings ,rental building and for sale must have energy efficiency certificate when Philippine still waste energy from poor people pocket.

    2. Mr. Kritz, Corruption in the Philippines has always been here for decades, people were aware of these shenanigans, some decided to get out of the country to find a better place, some prepared to stay and became prosperous in their trade, legal or otherwise. The lawyer of Janet L. Napoles asked Mr. Lacierda for help that her client want to surrender only to the President. Remind you that it was the President who declared the P10 M reward to find the fugitive. The President was informed of the event to follow. What is the President to do but to be sure the safety of Ms. Napoles, and he did. Now supposing he did not care and leave up to Mr. Lacierda and somebody killed her, what do think will the people say? This is a case where the President was damned because he did his humanitarian job, and he will even be more damned if she ended up dead and President did secure her safety when asked. Based on you criticism of the President I can just imagine what you have written if the latter was the case.