ADB told to review energy policy, rather than draft a strategy based on a flawed policy

The Freedom from Debt Coalition (FDC) – Philippines on Wednesday urged the Asian Development Bank to review, if not overhaul, its 1995 Energy Policy rather than drafting a "new" strategy that is based on a "flawed" policy.

Said energy policy governs the power industry restructuring and privatization in ADB's developing member countries (DMCs) such as the Philippines through the Power Sector Restructuring Program (PSRP).

"ADB must consider re-examining its energy policy because it is all about catering to the interests of the corporate industry players and creditors, but not of the consumers," said FDC president Ana Maria R. Nemenzo in time for the forthcoming ADB's sub-regional "consultation" among stakeholders in Southeast Asia and the Pacific on July 13 at the Bank's main headquarters in Ortigas. This is the last of the four consultations on the Bank's draft Energy Strategy which is expected to be approved by September 2007.

One of the focuses of ADB's 1995 Energy Policy is on enabling private
investments in the energy sector. The policy sets the Bank's focus of
assistance which includes, among others, preferential financial support
for its DMCs that are willing to restructure their energy sector and
support to build-operate-transfer (BOT) type of projects in the private
sector as well as joint venture projects.

FDC said that ADB's energy policy, which was implemented through the
Electric Power Industry Reform Act (EPIRA) in the Philippines, has
compelled the government to increase the generation rates to attract more investors to participate in the privatization of government's generation assets. It also legitimized the debts arising from and payments to expensive and onerous contracts of National Power Corporation with independent power producers.

"This policy has caused additional debt burden to the national government and the National Power Corporation. From only about P500 billion long term debts and lease obligations to IPPs in 1998, now it has ballooned to about P1.4 trillion," said Nemenzo.

Maitet Diokno-Pascual, former president and now board member of FDC, said that the ADB knows about these problems. "But its response is typical of an international financial institution that won't acknowledge its error," she said, adding that the Bank just keeps on lending more and more to the power sector to cover up its mistakes.

Diokno-Pascual explained that since the US$300 million power sector
restructuring loan the ADB extended to the Philippines in 1998, it had to extend additional assistance—loans and technical assistance—of nearly US$500 million. From 2001-2006, 99.6 percent of the ADB assistance to the country's energy sector has been in the area of power sector development.

"This is not because the first loan was a resounding success, but because this is the only way the ADB knows how to keep the flame of power restructuring alive in the Philippines. At this point, the ones with the biggest stake in defending the power sector reforms are the creditors themselves," added Diokno-Pascual.

Nemenzo said that the ADB estimated the total financing requirement for
the power sector to reach US$9.1 billion or P418.6 billion (US$1=P46) in 2006 – 2010 to cover assumed loans from NPC and deficits/losses from
contracts with IPPs. US$450 million was already released by ADB in
December 2006 under the Power Sector Development Program Loan.

The draft strategy, which will guide the Bank's future operations in the energy sector, is expected to address key issues, including: energy
security; global warming/climate change; sector policy reform and
governance; and, energy efficiency.

Following the initial 1981 policy, the ADB Energy Policy was developed in 1995, which is subject for review every 5 years. The Bank undertook a review in 2000 and came up with framework and strategy for its operations for the succeeding years. However, the next review supposedly to be undertaken by 2005 was delayed as the Bank failed to come up with the draft paper for consultation with the different stakeholders.

The framework policies and strategies set in 2000 after the review of the 1995 energy policy are: poverty reduction; addressing regional and global environmental impacts; promoting regional cooperation; and, promoting private sector involvement, which prompted the restructuring of the energy sector in the country and helped create an enabling environment for private investors.