By LUZ RIMBAN
(First published in April 2001)
FOUR days after it assumed office, the government of President Gloria Macapagal-Arroyo gave the final approval to the most controversial power project in the country: a $470-million hydroelectric power contract that was awarded to the Argentine firm IMPSA (Industrias Metalurgicas Pescarmona Sociedad Anonima).
For eight years, the project to rehabilitate and operate the 750-megawatt Caliraya-Botocan-Kalayaan (CBK) power complex in Laguna was in limbo because various state agencies and rival private companies objected to what they said was the favorable treatment IMPSA was seeking from the government.
But in an opinion dated January 24, Justice Secretary Hernando Perez, who was then just two days in his post, set aside these objections and removed the legal obstacles to the turnover of the CBK complex to the Argentine firm. Two weeks later, on February 7, the government-owned National Power Corporation (NPC) formally handed to IMPSA the most strategic power facility in Luzon.
The CBK complex is the heart of the Luzon grid. It acts as the grid’s regulator, able to transmit power to other plants in the grid in the event of breakdowns. It is also fuelled by water drawn from the Laguna de Bay and the Caliraya and Lumot lakes, a cheap and environmentally safe source of energy.
The haste with which the turnover was made under an administration that had barely warmed its seat has raised eyebrows in the power sector. It has also focused attention on the role played in the IMPSA saga of two well-connected individuals who have helped steer the Argentine company through the rough waters of three administrations: Mark Jimenez, a former trusted crony of ousted President Joseph Estrada, and Carlos Villa Abrille, a half-Argentine businessman who has been Philippine ambassador to Buenos Aires since the time of former President Fidel Ramos.
It was Villa Abrille who was helping iron out the kinks in the IMPSA deal up to the last days of the Estrada administration. Three days before the president was ousted, businessmen close to him said, the ambassador was in Estrada’s Greenhills mansion, seeking Malacañang’s help in getting a justice department opinion favoring IMPSA.
On January 20, the day Estrada left the presidential palace, Villa Abrille was seen by at least two businessmen at Linden Suites, which Arroyo used as a temporary headquarters during the revolt. Four days later, the opinion that IMPSA wanted was on the new justice secretary’s desk.
IMPSA-Asia President Francisco Ruben Valenti said he met with Perez at the latter’s office on the same day and gave him a briefing on the history of the CBK project. In those days, Perez was busy issuing hold departure orders against Estrada cronies yet he found time for Valenti.
But Perez, in an interview, flatly denied he had met with Valenti or other IMPSA officials on the CBK project. He said it was not Valenti, but NPC officials-whose names Perez could not remember-who pestered him to sign the opinion.
On January 26, newspapers reported that Jimenez saw Perez and offered to testify against Estrada. But the justice secretary said the Jimenez affidavit does not make any mention of the IMPSA deal. Yet on January 18, a newspaper article said former finance secretary Edgardo Espiritu had cited “the IMPSA power plant project, supposedly involving Mark Jimenez, as the first among many allegedly anomalous transactions.”
The IMPSA case, which dates back to 1993, shows the lack of transparency in the awarding of multibillion-peso government contracts. It also reveals the opportunities for brokering and deal making that arise from the privatization of the potentially lucrative power sector.
The case of IMPSA has been the most publicized, but similar questions have been raised about other power plant contracts, including the one involving the rehabilitation of the Binga hydroelectric power plant in Benguet. What these cases have in common is the connections private companies make at the highest levels of government to wangle contracts advantageous to them.
“There have been unseen hands working on this contract,” said Senator Sergio Osmeña, Jr., who has been opposing the IMPSA contract for the past two years. Osmeña, however, is himself identified with the Lopez family, which owns the First Private Power Corp. The Lopezes lost out to IMPSA, even if they, too, had their connections in Malacañang.
“That’s the difficulty with business in this country, it’s not a level playing field,” said a businessman familiar with the IMPSA case and who has brokered deals between government and private firms since the Marcos era.
The scramble for CBK began during the Ramos presidency, when the power crisis was at its peak and Luzon was suffering from daily outages. Villa Abrille, who had just been appointed ambassador to Argentina, facilitated IMPSA’s unsolicited proposal to rehabilitate CBK.
At around that time, the Philippine firm International Container Terminal Services, Inc. or ICTSI owned by the family of businessman Enrique Razon won a contract to privatize a port in Argentina.
The perception in the business community was that the Argentines and their brokers wanted the CBK contract as a quid pro quo for the ICTSI deal, although both Valenti and Razon deny this.
Both, however, were present when President Ramos visited Argentina, and when then Argentine president Carlos Menem visited Manila. The IMPSA proposal was taken up in both state visits.
The proposal, however, was held up by a land dispute in Laguna. It was also challenged by the Lopezes, who wanted to retain their dominance in the power sector. The Lopez firm offered to charge the NPC only 64.5 centavos per kilowatt hour for the electricity the CBK power plants would produce as against IMPSA’s original price of P1.80. IMPSA was forced to match the Lopez bid, although it would later charge the NPC a still higher rate of 69 centavos.
Questions were also raised over whether a foreign company should be given rights to operate a hydroelectric power plant as the Water Code allows only corporations with at least 60-percent Filipino equity to exploit water resources.
When Estrada took over, IMPSA found a patron in Mark Jimenez. The businessman, who is wanted in the U.S. for tax fraud and illegal contributions to the 1996 reelection campaign of Bill Clinton, was selling computers in South America in the mid-1990s. He met Villa Abrille in Argentina and was introduced to the ambassador’s friends, Valenti and Enrique Pescarmona, owner of IMPSA.
When Estrada was elected in 1998, “Jimenez convinced Estrada to do the IMPSA deal,” said a businessman who was often in Malacañang at that time. It was also Jimenez, this businessman said, who set up meetings between Valenti and Estrada, and arranged the signing in Malacañang on Nov. 6, 1998 of the BROT (Build-Rehabilitate-Operate-Transfer) contract between IMPSA and the NPC.
But Valenti denies any such relationship with Jimenez, saying only that “forces of evil have tried to link Jimenez with CBK.” Valenti did admit though that in July 1998, barely a month after Estrada became president, Jimenez approached him offering to help facilitate approval of the CBK Project.
It was also around that time when then NPC President Federico Puno sent Valenti a letter listing the three conditions that were thought necessary to protect NPC interests. The most contentious of these was the condition that the government should not give IMPSA a “performance undertaking,” a guarantee that the government would assume IMPSA’s debts and capital investments in the event the contract is terminated or if the NPC suffers losses, is privatized or dissolved.
The absence of a guarantee made it difficult for IMPSA to get financing for the CBK project. IMPSA needed the funds to rehabilitate the power complex, which is composed of three hydroelectric plants in Laguna. The firm, which would invest $130 million and borrow $340 million for the project, would then sell the power it generated to the NPC. Its contract guarantees a 12-percent annual return on equity-about $5.6 million a year-for 25 years.
In a letter to the finance department on February 12, 1999, Valenti said “distressed financial markets both abroad and in the Philippines” would make it difficult for IMPSA to implement the project without a performance undertaking.
Still, a broad range of officials from the NPC, the finance department and the National Economic and Development Authority (NEDA) refused to agree to a performance undertaking because it would violate the amended BOT (Build-Operate-Transfer) law that says unsolicited proposals like IMPSA’s cannot be given such guarantees.
Then Finance Secretary Edgardo Espiritu said he adamantly refused to sign a performance undertaking, despite Estrada’s insistence, lest he be held liable for graft for violating the BOT law. “Ang pumipirma sa (The one who signs the) guarantee is the Department of Finance,” he said. “And I talked to (then NEDA chief) Felipe Medalla and told him, ‘Philip, this is not what NEDA had approved.’ If we’re forced to sign this, said Philip, we should both resign.”
In the end, apparently to appease the President, what Espirtu signed on July 12, 1999 was a vaguely worded document that barely committed the government to honor the project’s obligations. In the meantime, the Manila Times published a report that raised questions about the IMPSA project and the firm’s insistence on a government guarantee, calling Estrada an “unwitting ninong” to an anomalous contract.
Estrada was mad, threatened a P100-million libel suit against the Times and eventually forced its sale to his crony Jimenez in late July 1999. The Times controversy made it all the more difficult for IMPSA to get the guarantee it wanted. In addition, IMPSA failed to meet other obligations set by the NPC, including a $70-million security deposit, which took the Argentine company two years to post even if the deposit was supposed to have been given immediately after the contract was signed in 1998.
IMPSA also violated the condition set by NPC that it retain 100-percent equity in the CBK project for the first seven years. Instead, the company brought in the American firm, Edison Mission Energy (EME), which specializes in hydroelectric power plants. The entry of EME diluted IMPSA’s equity to 50 percent even before the contract took effect. Valenti, however, insists that the BROT contract allows IMPSA to maintain a minimum of 20-percent equity.
Because of possible questions that might be raised about the government guarantee, the new finance secretary, Jose Pardo, hedged signing anything that might be legally questioned.
He finally gave in on December 28, 2000, just three weeks before Estrada’s fall, when he signed a Government Acknowledgment and Consent Agreement. This document is not a direct government guarantee but it bound the government to honor agreements IMPSA made with its creditors.
On January 17 this year, Pardo wrote the justice department a letter asking for a ruling on whether it was valid for him to sign that document. This was because the investment coordinating committee of NEDA, in which the finance department was represented, required approval of the document by the justice department. NEDA and finance department officials knew they were treading on dangerous legal ground. Unless this ruling was made, the contract could not get final government approval.
Pardo quickly withdrew his request for a justice department ruling, given the volatile political situation at that time, and because Espiritu had already come out in public identifying the IMPSA deal as an anomalous contract.
But the lobbying went on until just a few days before Estrada’s fall, when Villa Abrille was paying visits to the Ejercito residence on Polk Street. A few days later, he was seen at Arroyo’s headquarters at the Linden Suites in Mandaluyong.
What Perez signed soon after he became justice secretary was the document IMPSA had been waiting for. That opinion deviated from the norm: It is not numbered unlike other justice department rulings, and has not yet been published, reflecting the lack of transparency surrounding its release.
After it was issued, 19 banks led by BNP Paribas, the Dai-ichi Kangyo Bank, the Industrial Bank of Japan and Societe Generale agreed to put their money into the CBK project.
What could have convinced lenders to invest in the project was a line in the Perez ruling that said “the Republic of the Philippines has validly and effectively consented to the transfer and assignment to the Lenders of all of CBK’s rights under the Government Undertaking.”
Former finance department officials said the statement commits the government to agreements entered into by IMPSA and its creditors. “It’s a dangerous statement to make,” said a former finance assistant secretary. “It’s an additional defense for IMPSA against the NPC. It could put the Republic in a very precarious situation.”
Perez defended his decision. “There is nothing illegal in the contract,” he said, adding that the IMPSA opinion was just one of the standard rulings justice secretaries are made to sign. “To begin with, I didn’t know it was controversial… My staff looked into it and if there’s any impropriety, it should have been discussed at other levels.”
Perez was not completely new to the IMPSA controversy. In 1999, he was a partner in the Balgos & Perez Law Office that defended the Manila Times in the libel suit filed by Estrada.
In January, Perez conducted the direct examination on Espiritu during Estrada’s impeachment trial. The former finance secretary took the witness stand ready to divulge information on the anomalous contracts entered into by Estrada government, among them the IMPSA contract.—with additional reporting by Malou Mangahas
(VERA Files trustee Luz Rimban wrote this piece in April 2001 when she was the broadcast director of the Philippine Center for Investigative Journalism. Her story was a finalist in the following year’s Jaime V. Ongpin Awards for Excellence in Journalism. The article was first posted in the PCIJ website.)