- The Washington Times - Thursday, June 19, 2003

Wayne C. White of Foresight Associates in Acton, Mass., specialists in environmental and developmental issues, reviewed the Power Purchase Agreement for the $1.19 billion San Roque Dam project on the Luzon island in the Philippines. Mr. White has evaluated civil engineering projects in developing countries for the World Bank and for the governments of Laos, Nepal and Indonesia, and has been a consultant for several large U.S. corporations. He answered questions posed by Washington Times reporter Takehiko Kambayashi.

Question: What have you found about the San Roque Dam project in northern Luzon?

Answer: Unfortunately, I have found a project that costs the people of the Philippines much more than the value of any benefit it will provide to them.

Many people think that hydropower is inherently cheap energy, since there is no fuel cost. This is not necessarily true if the construction cost is surpassingly high, or if the energy production rates are low.

Having searched out the combined effect of all the contract provisions, what comes to light is a project where the construction costs are extravagantly subsidized by the Philippine taxpayer, and — adding insult to injury — the utility will pay the developer up to 10 times as much for each unit of electricity delivered than for a competitive least-cost source.

Q: The Japan Bank for International Cooperation financed the project. What do you make of JBIC’s role?

A: The way I see it, there are three possibilities.

One is that they were ignorant of the project’s flawed economic return, technical inability to deliver promised benefits, and impact on affected communities. Given the competence of such Japanese institutions, this is hard to believe.

The second is that they knew and didn’t care. The third is that they acted out of an overwhelming political compulsion.

I’ll have to leave it to others to say which of these was the controlling factor.

Q: Does the agreement ensure productive long-term power production?

A: No. The PPA (Power Purchase Agreement) insulates the developer from any hydrological risk. What this means in plain language is: If the contractor has built a huge dam and turbine system where insufficient water flows to make use of it, the consumer takes the loss.

The recent announcement that San Roque will be run as a peaking power plant amounts to an admission that the limited available water flow makes cost recovery impossible.

Q: What does the agreement mainly oblige the NPC (National Power Corp., a Philippine government entity) to do?

A: Pay and pay. It pays a $400 million subsidy upfront, pays a high rate for power delivered, and it pays set monthly fees even if energy is unavailable.



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