Corruption Jacking Up Electricity Cost -- ADB Study

By Doris C. Dumlao

First posted 04:29am (Mla time) Oct 28, 2005

Inquirer News Service [Page A5 of the Oct. 28, 2005 issue of the Philippine Daily Inquirer]

A new study by the bank warns that “deeply rooted” corruption is jacking up costs of power projects in the Philippines, delaying their implementation and providing Filipino households and businesses with expensive but unreliable electricity services.

“If unmitigated, the growing negative perception will adversely affect the inflow of investments into the sector,” the ADB said in a study assessing its assistance to the local power sector as a lead development partner over the last 30 years.

It acknowledged that the bank’s assistance program had failed in helping to provide the country with reliable and affordable electricity as well as a financially viable power sector and pledged to do better.

The bank lamented that corruption existed even in ADB-supported power projects, putting the multilateral lender’s own reputation at risk.

“ADB’s support of sector reforms and privatization exposes ADB to corruption-related risks, which highlights the need to carry out such reforms and privatization openly and transparently,” the study said.

Nevertheless, the study said the ADB should continue to support the sector, particularly its transformation to a well-regulated, competitive sector that is financially viable.

The ADB study, which devoted a 13-page appendix on corruption using inputs from Transparency International, said corruption was contributing directly to higher costs of electricity.

It noted that household electricity rates in the Philippines were the third highest after Japan and Hong Kong and were two to three times more expensive than in most other countries.

It said corruption was involved in almost all phases of a project, from tendering and bidding to operation and maintenance as well as privatization and awarding of independent power producing contracts.

“The relatively large number of alleged corruption incidences at the stage of privatization implementation might have been driven partly by some special interest groups opposed to the privatization of the power sector or commercial competitors,” it said.

The efforts to circumvent procedures designed to prevent corruption by some individuals within executing agencies, financing agencies, government and contractors also lead to project delays, the study added.

The bank said the country’s corruption problem must be solved. Business and residential customers, particularly the poor, should not pay for corruption through higher electricity rates and taxes.

The relatively low conviction rates in corruption cases in the Philippines provide little deterrence to potential offenders, the study said.

It cited as an example the case of the mothballed $2.3-billion Bataan Nuclear Power Plant, which was riddled with corruption charges and subjected to the arbitration and civil suits but still without major convictions.