Transcript of Sen. Miriam Defensor Santiago’s Interview
13 December 2007

On the JCPC hearing on the sale of PNOC-EDC

We are on the verge of losing our patience because the issue simply is how much the EDC has contributed to the national treasury. We already know how much it was sold for: some P58 billion. If it (EDC) contributed more than that to the national treasury, then why sell it? Because then it would be able to make more money than it is being sold for in the very near future. They (the government panel) cannot give us a ballpark figure. These are huge amounts of money and we are entitled to an explanation why we are selling a profitable government enterprise.

During the time of President Aquino, the sales of government assets were confined only to those that were non-performing assets or government corporations that were losing money. We never sold any profit-making assets because if we sold it to a private owner he would pay today and we would have today the amount that he paid, but the entire revenue stream or the entire potential earnings of the enterprise would have absolutely stopped. It would be like looking only at the short-term but not at the long-term. It would be trading instant gratification for future security.

(But) the most basic problem is why they didn’t inform us that they were selling it. All the while we thought that just trying to prepare for the sale of certain assets of the EDC like its geothermal fields and steam sales agreements. We didn’t have any inkling that they were selling sixty percent of EDC which would make government lose control of a geothermal firm that is considered one of the first in the whole world. We are number one in steam sales technology and number two in steam sales production. Now PNOC-EDC, through the chair of the Privatization Council (the Finance Secretary) and the president of PNOC-EDC himself, wants to sell this valuable asset for what?

Plus, I have a personal concern on why did the winning bidder, Red Vulcan, bid P 58.5 billion, which is P13.5 billion higher than the floor price. In other words, the Privatization Council and PNOC-EDC undervalued the valuable assets of our government. Even the buyer himself admitted that the floor price was an undervalue of the asset. Why make it easy to sell something that is making money? Their argument there is very weak, and that is that now it (EDC) is in its peak price and we will never be able to sell it in the same amount again. How did they know that? Do they have any fact-based data to support their argument?

In the case of the JCPC, we have one particular instance in the past when, owing to the intervention of a public official, a sale that has already taken place, was cancelled or aborted… it turned out that the cancellation of the government asset sale, I’m talking about Malampaya EC, was correct because eventually the price of oil rose from $30/barrel to $100/barrel, so the income from Malampaya rose as well. If we have not stopped that sale at that time, we would have lost a valuable asset forever, and it is now making a lot of money for the government. That is more or less the same situation as EDC.

Can the JCPC still block the sale?

[The sale] has not yet been implemented. In a sense it has been consummated because the winning bidder has been announced, and was able to make full payment in cash. The next thing that should happen is that it should now take over control of EDC. But not if the JCPC can help it. If we need to go to court, then we will go court. But first we will give the Secretary of Finance and the PNOC President, the two officers responsible for the sale, an opportunity to explain themselves. What I am doing here is I’m making a compilation of all the questions that were raised today and I will give them until next week to give me a specific answer for each question. They were saying this morning that they don’t have the exact figures. We find that hard to believe. You would have at least some rounded or ballpark figures in your head if you are dealing with an amount as big as P 168 billion.

The power of the JCPC is to monitor the privatization of the power industry and to ensure compliance of the Epira. Epira provides that we must optimize the value of our assets that are being sold. If we find that the value has not optimized and we therefore reach the conclusion that the law has not been followed, we would have good legal grounds for ordering them to withdraw their approval, just as they did in Malampaya.

You insinuated earlier that somebody must have received commissions and kickbacks

It cannot be helped because these people could at least have given the senators and the congressmen the basic courtesy of notice. Sa tingin ko may kumita dito. Bakit mo ililihim kung wala kang itinatago? Napag-usapan na ito sa JCPC noon pa. Sinabi namin na huwag na nating ibenta ang shares of stock o control ng EDC, ibenta na lang natin ang mga assets niya. Nagulat na lang kaming lahat na ibebenta na pala. That is mainly the burden of the JCPC. We are trying to understand why they didn’t give us due notice and wait for us. What is the rush, since the sale price of P58.5 billion is meant to go only to make up for the budget deficit. That is not the function of the Privatization Council or the Department of Finance.

They could not even answer the question [how much the government lost in the sale of EDC]. I want to know how much has EDC given to the national treasury. At first they said P71 billion. Kita mo na: binenta natin ng P58 billion ang kumikita ng P71 billion. Tapos ang sabi nila “ Mali pala kami, meron pa pala kaming ide-deduct diyan.” Ang mga kumisyon daw ng mga broker at underwriter sa kanilang benta. Hindi raw kumpleto ang listahan nila. Iyon na nga ang problema, may mga kumikita nang hindi alam ng publiko.

On citing Transco President Arthur Aguilar for contempt

I cited him for contempt because pinag-uusapan dito kung maayos ang pagbenta ng Transco. Biro mo, presidente siya ng Transco hindi siya dumating, nagpadala lang ng vice president niya dahil nagpreside daw siya ng nationwide bidding ng mga subordinate at regional managers niya. Pinag-uusapan ang P160 billion ng gobyerno dito, at mas gusto niya na makihalubilo sa mga subordinates niya. He is not giving the JCPC the proper courtesy of at least his physical appearance.

I gave him 3 days to file a motion for reconsideration, but I have already said that we will not find it acceptable that he explains himself by merely saying that “I am sorry but I am presiding over a nationwide conference.” E di magpa-preside siya ng ibang tao at bumalik siya ng hapon. Anong deperensya? Anong problema? But we will ask him to explain in writing what the details of (the sale of) Transco are.

My reading of the JCPC law is that we can detain or imprison him for less than one year, and we can impose a fine of less than P50,000.

On Ibazeta’s defense on charges of conflict of interest over the sale of Transco

Myself as chair and Rep. Arroyo as co-chair the explanation to be reasonable and therefore valid. He (Ibazeta) is saying that “There is no conflict of interest. I am chair of a terminal services corporation and we are here dealing with the power sector, so I don’t see any conflict between terminal services and the power sector.” Besides, he inhibited himself from the bidding process because of the ethical question that has been raised. Unless there is further evidence, we find that he has acquitted himself successfully on the charge of conflict of interest. Whether there is any irregularity in the bidding process itself or in the projected dire consequences of the sale to this winning bidder, that will be taken up by another committee.

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News Release

27 November 2007

MIRIAM HITS MULTIMILLION KICKBACKS IN STATE ASSETS SALE

Sen. Miriam Defensor Santiago, co-chair of the Joint Congressional Power Commission, expressed concern over multimillion kickbacks for certain public officials pushing for immediate sale of government assets in the electric power industry involving billions of pesos.

“The Epira law orders privatization of the power industry, but we must make haste slowly. If we don’t watch out, those sales could adversely result both in higher electric rates paid by consumers, and in multimillion kickbacks and commissions for certain public officials involved,” Santiago said.
Santiago stopped yesterday apparent efforts by PNOC-EDC president Aquino to secure JCPC approval of the Geothermal Resources Sales Contract for Palinpinon 1 and 2, and for Tongonan 1.
Aquino reportedly tried to convince JCPC co-chair Rep. Juan Miguel Arroyo and the JCPC House panel members to secure JCPC approval before December 5, the date set for bidding of the geothermal fields.

Aquino is already under fire from Santiago and JCPC, for allegedly going behind the backs of the JCPC and securing approval for privatization of the National Transmission Corporation (Transco) from Finance Secretary Gary Teves, as chair of the Privatization Council.

In her letter to Rep. Arroyo, Santiago refused to call an emergency meeting of the JCPC to approve the geothermal contracts, because the price for electricity is set in US dollars instead of Phippine pesos.

“This is the very reason why electricity in the Philippines is one of the highest in the world. Under the contracts, the consumers will again be hit by so-called automatic adjustment mechanisms, which will raise the price of electricity,” Santiago said.

Santiago also denounced the provision in the contracts giving so-called performance incentives for PNOC-EDC in the controversial contracts.

“The performance incentives that PNOC-EDC is giving to itself will of course increase the price of electricity,” Santiago said.

Santiago further hit the contracts, because they index indigenous geothermal resources with coal.

“This indexing has no rational basis and would again give windfall profits to PNOC-EDC, at the expense of the consumers,” the senator said.

Santiago insisted that the controversial issues in the contracts should be fully studied first by the new JCPC members.

“One public hearing, without prior study by the new composition of the JCPC, will not redound to the national interest. The Epira mandate to privatize does not preclude full study of the implications and consequences of each contract proposed by PNOC-EDC,” Santiago said in her letter to Arroyo.

The senator told the Senate media that PNOC-EDC “is becoming suspicious,” because it wants to reach fast-break approvals of multibillion contracts which could involve multimillion kickbacks.

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Transcript of the interview with Sen. Miriam Defensor Santiago after the Joint Congressional Power Commission hearing

22 November 2007

On the JCPC’s position on the Steam Sales Agreement between PSALM/NPC and PNOC-EDC

The Joint Congressional Power Commission will pass a resolution requesting the Secretary of Finance who sits as chair of the Privatization Council to come to the Powercom perhaps next week to the Senate and explain why did that council approve the sale of PNOC-EDC considering that this commission has already indicated for the record for the presence of the heads of the power sector that we do not want PNOC-EDC to be sold. Number one, under the EPIRA law, it is the only entity in the government mandated to explore and develop indigenous sources of energy. So in our view, the sale, if it proceeds, will be a violation of EPIRA. It would therefore be illegal, and it that sense, might be a ground for action before our courts.

Number two, we oppose the sale because, as we’ve already said in 2005 in a resolution passed by the commission, there is no objection to the statement or the finding that PNOC-EDC is number one in the world in terms of steam technology and number two in the world in terms of geothermal capacity. It is earning at least P600 million annually, and this income will tend to rise because under a law the price of gas is indexed to the price of oil. The price of oil has risen from $35 per barrel to nearly $100 per barrel. And under Philippine law, if the price of oil rises, the price of gas correspondingly rises as well. Under that law, it is predictable that the P600 million annual income of PNOC-EDC will correspondingly rise.

Lastly, it is said that it is the most profitable venture of government. The argument that we should sell when it is profitable might be relevant in a business environment but we are talking of a policy environment. What is the national policy? Geothermal energy as an alternative source of energy should be sustainable in our country. If we sell this to the private sector, it is the private sector that will make money, not our government. Also it is said that since the privatization council already has approved the sale, we might lose credibility to our foreign investors. But yet, there is a countervailing opinion in the international business community that our economy will prove not as strong as we claim if we depend in a one-off sale to cover the budget deficit which should be logically covered by increased revenues from the Bureau of Internal Revenue and the Bureau of Customs. For all of these reasons, we are giving the Secretary of Finance an opportunity to air his side before the Powercom decides on more coercive measures to insist that PNOC-EDC should stay within government ownership and control.

There was a spirited defense on the sale by the President of PNOC-EDC, Mr. Paul Aquino, and we fully appreciate his arguments. However, it was the unanimous consensus of the commission of all 14 members that his arguments are invalid arguments. They are effective for a business organization, but not for the running of government. We do not want to take drastic measures at this point against those responsible, but our feeling is there has been no proper courtesy extended to the Powercom.

The JCPC is no ordinary committee; it is a commission. In effect, under the EPIRA law which created it, this commission is independent of its own chambers, whether the Senate or the House of Representatives. So it is an extremely powerful commission. When the commission expresses an opinion, and in fact passes a resolution, it is highly impudent of the executive branch—I am not talking of the President—to take action contrary to a resolution of such an elevated legislative group as the Commission. Since they already knew that we were already convinced that there should be no sale, why did they not even bother to formally inform us that they were considering this very same sale in the Privatization Council; we have to learn about it during the recent budget hearing.

The resolution will state that we view it as an illegality, although we will try and work out the proper language so it will not come across as too harsh or threatening because all three branches should always work in harmony since that is the best way to advance the cause of government. But there is no denying that the Powercom is extremely upset about this news particularly since the highest bid was approved yesterday. However, today is the deadline for the issuance of the notice of award and November 30 is the closing date when the winning bidder is required to make a full payment of its bid. So we still have time. We, in our resolution, imply that there is a need to suspend the proceeding of the privatization process, and in effect to give the Powercom at least notice to consider any step as drastic as selling off what has already been described as the crown jewel of our economy.

We considered all arguments. As chairperson of the commission, I already read out my own summary of all arguments in favor of and against privatization. We were hoping that that they would show that government earnings would increase with the sale, but it won’t. There is no certainty; all prices are increasing. Therefore, gas prices will increase as well. so why are we selling an asset in the process of making even more money than it has in the past, and its income-generating abilities have never been in question? Why are we selling it? And who will promote and develop indigenous sources of energy? The Department of Energy testified that it does not have funds for that function since the mandate was very clearly given to the PNOC-EDC by EPIRA law. That will create a vacuum in our energy plans for the future. That would be highly irresponsible. It is not the mandate of the DOF to raise revenues through privatization. What would the international investment community think of a government that seeks to balance off its budget by selling off its assets? [By doing so] Our government will lose even more credibility than the loss of credibility that might occur if there is investor backlash owing to the suspension or withdrawal of the private sale.

I believe that this problem was caused by the confusion in the minds of the officials of PNO-EDC, the DOF and the Privatization Council. They were confused between making identification between raising money and the promotion of indigenous sources of energy. They just wanted to make money as quickly as possible. But our assumption here in Powercom is to think of the future, not only of the short range, intermediate, also of the long term consequences of the loss of PNOC-EDC. That is what really bothers us. I don’t think that the Powercom will allow that to happen.

What may be the punishment for officials if they are found violating laws with the sale of PNOC-EDC?

We can hold the Secretary of Finance in contempt and punish him. Number two, is we can file a case in the Supreme Court and ask for a TRO on the ground that the sale is a violation of law. Three, we can appeal to the President to withdraw the approval. But we don’t want to go into those things yet. In the spirit of interdepartmental courtesy and avoid conflict between two branches of government, it would be best if they just defer to the decision of the Powercom. And then we’ll take it up from there after the next hearing.

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