Danessa
Rivera (The Philippine Star) - December 27, 2019 - 12:00am
MANILA, Philippines —
As like the water privatization contracts, a major privatization deal in the
power sector is under threat during the Duterte administration – the concession
agreement of the National Grid Corp. of the Philippines (NGCP).
Fitch Solutions, the
research arm of the Fitch Group, has warned that similar contracts between the
government and private firms may face the same level of scrutiny and possibly
revocation if the government finds it disadvantageous.
“We believe other deals signed between the government and the private
sector are also at risk of scrutiny. The government had alluded to ‘onerous
provisions’ within the existing concession which disadvantaged taxpayers as a
basis for revocation, review and re-negotiation,” it said.
But unknown to many,
the NGCP concession agreement has been under the scrutiny of the government
since the Duterte administration started.
More recently though,
concerns over China having remote control on the country’s national power grid
took center stage. It was only sidetracked after the water concession
agreements came under the spotlight.
This as National Transmission Corp. (Transco) president Melvin Matibag told the
Senate at a budget hearing in November that China could possibly disable the
transmission network which is responsible for the delivery of electricity
across the country.
Matibag also told
senators that NGCP has repeatedly denied or limited TransCo’s access to the
facilities which Transco actually owns.
This has driven several
lawmakers to call for an investigation on the matter, which they said has
become a national security concern.
How it all began
The Electric Power
Industry Reform Act of 2001 (EPIRA) mandated the privatization of the transmission
facilities, including grid interconnections and ancillary services, through an
outright sale or a concession contract—considered as one of the biggest
Philippine privatization on record.
The management and
operation of the transmission facilities were first bid out by the Power Sector
Assets and Liabilities Management Corp. (PSALM) in 2003 during the Arroyo
administration.
The first three rounds
were failed biddings as only one submitted a pre-qualification proposal or an
expression of interest.
The fourth round was
the charm, with five bidders namely Monte Oro Grid Resources, La Costa,
Citadel, San Miguel Corp., and Two Rivers Consortia. In December 2007, it was
toss up between Monte Oro, which was then connected to port magnate Enrique
Razon, and San Miguel.
Government had
established the technical criteria because of the country’s lack of expertise
in running a transmission network. Monte Oro partnered with Calaca High Power
Corp. and State Grid Corp. of China (SGCC), and San Miguel with TPG Aurora BV
of the Netherlands and TNB Prai Sdn Bhd of Malaysia.
Eventually, Monte
Oro-SGCC outbid the San Miguel consortium by just a mere $45 million, and
eventually became the NGCP.
NGCP then sought and
was granted a 25-year congressional franchise, and started operating the
country’s transmission lines in 2009.
But even at that time,
the Freedom from Debt Coalition (FDC) had flagged concerns over the
privatization of the power grid as this would supposedly result in government
losing potential revenue, and raised security concerns as the transmission
lines have broadband capacity.
“FDC believes that as a
natural monopoly – the sole vital link among major sub-sectors in the power
industry – TransCo properly belongs to the state and must remain under its
control,” it had said.
Fast forward to 2019,
the very same issues have been highlighted more than a decade after.
Security concerns with China
Sen. Sherwin
Gatchalian, who chairs the Senate Committee on Energy, has filed a resolution
to scrutinize the compliance of the NGCP on its mandate to safeguard the grid
and ensure continuous electricity supply in the country.
The senator has also
called on the Joint Congressional Energy Commission (JCEC) – the country’s
primary watchdog in the power sector – to look into the operations of the
country’s power transmission line to verify whether Filipinos are in charge of
its day-to-day management amid national security concerns.
“There is a need to
verify whether Filipinos are actually in charge of the day-to-day management of
the grid as mandated by the constitution despite the National Transmission
Corporation (TRANSCO) and the Department of Energy’s (DOE) manifestations
during the 2020 budget deliberations that all executive officers of NGCP are
Filipinos,” he said.
“We should employ all
possible safeguards to ensure that Filipinos are in control of the lone power
grid, that Filipino interests are being protected, and national security
concerns are covered 100 percent,” Gatchalian said.
Sen. Risa Hontiveros, a
staunch opposition lawmaker, has also sought for a national security audit of
the operations and facilities of the NGCP following the “discovery” of China’s
shareholdings in the grid operator.
But SGCC has been part
of NGCP since the concession agreement was awarded by the Philippine government
itself in 2008.
Department of Energy
(DOE) Secretary Alfonso Cusi said the security issues that China has control
over the Philippine power grid has been raised before.
“I wouldn’t say it’s
unfounded. It’s a concern that has been raised before. Potentially, I repeat
potentially, they can do it (remotely shut down) considering its digital
nature,” he said.
Moreover, Matibag said
NGCP has several Chinese directors currently sitting on the board and SGCC
effectively owns majority of the company.
SGCC is a global giant
based on revenues. It’s total assets is equivalent to $558.41 million. In 2017,
it posted a total revenue of $315.2 billion.
SGCC owns 40 percent of
NGCP while 60 percent is owned by Filipino companies. Matibag, however, noted that
the 60 percent is divided 30 percent each for Henry Sy Jr.’s One Taipan
Holdings – which bought Razon’s Monte Oro Grid – and Robert Coyiuto Jr.’s
Calaca High Power.
In its defense, NGCP
said sitting Chinese directors are in compliance with the Constitution.
It said the
participation of SGCC in NGCP is limited to its proportionate share in NGCP’s
capital.
“Thus, out of the 10
members of NGCP’s Board of Directors, there are four SGCC nominees representing
SGCC’s share,” NGCP said.
Moreover, NGCP said the
SGCC serves as the technical adviser of NGCP, but management and control,
including its System Operations (SO), are exercised exclusively by Filipinos.
A industry observer
also said SGCC is one of the largest public utilities in the world and has
invested in backbone energy networks in Australia, Italy, Greece, Portugal,
Hong Kong, and Brazil.
As the top two company
in the world in terms of revenues, SGCC has a lot at stake if it really has
remote control and decides to shut down the Philippine power grid.
“Let’s grant for the
sake of argument that they can shut down, this action would destroy their
worldwide investments as well as future foreign ventures. They’re in business
and want to grow. People can weave myths, but can they prove it? They’re
exploiting sinophobia,” the industry observer said.
An official also said
the issue is a slap to Filipino engineers working in NGCP whose expertise and
training have been ignored by government.
Moreover, NGCP said the
provision for remote access was already present when the National Power Corp.
(Napocor) was still operating the transmission assets.
In order to secure the
network, NGCP invested in a modern Supervisory Control and Data Acquisition
(SCADA) system and introduced stringent cyber security measures to fortify the
system.
The SCADA is operated
only by authorized Filipino employees of NGCP who have been trained and have
acquired expertise in its operation.
“By default, SCADA is
disconnected from the VPN. Thus, remote users CANNOT connect to SCADA. VPN
access may only be granted by the Filipino CEO of NGCP in an extreme emergency,
and only after undergoing a secure and confidential approval process. Since
NGCP commenced operations in 2009, this approval process has not been invoked
and there has been NO REMOTE ACCESS granted,” NGCP said.
To attest that NGCP’s
cyber security controls are aligned with global standards, it was issued ISO
Certification 27001 for Information Security Management System in August 2018.
The grid operator said
the certification covers the provision of system operations services to NGCP’s
power transmission business, which includes processes on power network
planning, operations, SCADA, telecommunication, protection and system
integration, regulatory compliance, systems and standards improvement, facility
planning, and grid security.
In accordance with DICT
Memorandum Circular No. 005, NGCP also engaged a third party to assess its
information security implementation and was confirmed to be compliant with
prescribed information technology security standards.
Inspections and audit
However, TransCo’s
Matibag claims the power grid could be hacked by any foreign entity and not
only China.
And the only way to
address this national security is for government to inspect and audit the
transmission facilities.
“That can only be
answered by us, by government inspecting it and making sure the oversight
function of government is carried out and we put in place whatever measures to
prevent it from happening, whether the threat is real or imagined,” Cusi said.
In fact, the DOE has
appointed newly installed undersecretary Emmanuel Juaneza to lead the inspection
and audit of the country’s transmission network.
“His role is to
coordinate with TransCo for the inspection of the facilities of TransCo so that
we will be able to answer once and for all, whether that accusation is
factual…and to formulate the measures that we need to do to make sure the
interest of the republic is protected,” Cusi said.
Matibag wrote a letter
to NGCP president and CEO Anthony Almeda, inviting him to a meeting and
proposing a Vulnerability Assessment and Penetration Testing (VAPT) of the
transmission network.
He said VAPT would
include the Department of National Defense (DND) and Department of Information
and Communications Technology (DICT) to “remove fear of the public as to the
issue of national security.”
For its part, NGCP
welcomes an inspection of its facilities to allay fears of China’s control of
the Philippine power grid.
NGCP has suggested a
visit by legislators and an independent third party to the facilities which was
already made in the past by some lawmakers and government regulators like
former energy secretaries Jose Rene Almendras, Carlos Jericho Petilla, and
Zenaida Monsada; undersecretary Alexander Lopez, Senate energy committee
chairperson Sherwin Gatchalian, House energy committee members, led by Rep.
Danilo Suarez and Baby Arenas, former Energy Regulatory Commission (ERC)
chairpersons Zenaida Ducut and Jose Vicente Salazar, former ERC commissioners
Gloria Taruc, Geronimo Sta. Ana, and Alfredo Non, current ERC Chairperson Agnes
VST Devanadera with commissioners Josefina Patricia Asirit, Catherine
Maceda, and Alexis Lumbatan.
In 2017, even Cusi and
Matibag also conducted a surprise visit of SO.
But government is not having it.
The DOE is pushing the
recovery of the SO from NGCP. It’s rationale? It argued that private company or
a private individual should not be given the control over the transmission grid
network.
The transmission
network is government’s crown jewel and considered as the most critical
infrastructure of the state because of its capability to transmit power and
digital data.
“Systems Operations
comprises just about six percent of the whole transmission business. It is not
critical to the business of NGCP. It should not have been included in the
concession contract in the first place. However, it is critical for the
existence of the State. It is critical too for making sure it aligns with the
operations of WESM (wholesale electricity spot market),” Cusi said.
With nearly two years
left in the Duterte administration, government has ample time to deal with NGCP’s
concession agreement and NGCP still has a long way to go to weather the
controversies hurled at it.
The President, however
has spoken, saying he does not see the stake of SGCC in the Philippine power
grid as a threat to national security.
“Filipinos still lack
trust, but I trust them. I take their word for it. China will not sabotage our
grid operation as it’s a business ventures of the State Grid of China and they
want to help,” he said.
