$2.1 Billion Nuclear Plant, Never Used, Stands at Core of Philippines’ Debt Crisis

Times Staff Writer

The heaviest item in the Philippines’ groaning foreign debt stands on the Bataan Peninsula, overlooking the South China Sea. It is a nuclear power plant, the country’s first, which has already cost $2.1 billion but has never been fired up except by the heat of politics.

“The plant will never operate,” Ernesto Maceda, the minister of natural resources, said not long ago. “It’s a closed issue in the Cabinet. We’re opposed 101%.”

All that remains to be done, he said, “is getting off the hook in the financial situation.”


But the effort by President Corazon Aquino’s government to get off the hook promises to be even more controversial than earlier debates about the safety of the 620-megawatt plant and allegations that commissions paid by the builder, Westinghouse Electric Corp., ended up in the pocket of ousted President Ferdinand E. Marcos.

Several Cabinet ministers have suggested repudiating some of the Philippines’ $16-billion foreign debt, including the loans that financed the plant, a radical move that could dry up foreign aid and investment for Aquino’s government as surely as political repression did under Marcos.

Even a more moderate course, which seems likely, may test foreign confidence in her government’s economic policies.

No formal decision has been made about what to do about the financing. “Whatever we finally decide to do with the nuclear plant project,” Aquino said at a press conference, “we will, of course, do our very best to see to it that the Filipinos . . . will get the best possible benefits from this huge expenditure that was made before my government came into existence.”

$1.2 Billion Owed

The government still owes $1.2 billion on the project, a concrete complex 80 miles northwest of Manila, almost within sight of a monument to the Bataan death march of World War II. The biggest creditor is the U.S. Export-Import Bank, which advanced $550 million for the project. Other loans came from a syndicate led by Citicorp and from Swiss and Japanese banks.

Aquino has said the country will honor its foreign debts, but her government is looking for some way to retrieve most of the money that Marcos sank into the plant. In mid-May, she dispatched her spokesman and legal counsel, Rene Saguisag, to the United States to explore ways of meeting that goal.


In a memorandum outlining his mission, Saguisag told Aquino:

“If we are going to adopt selective repudiation--I would prefer the term case-to-case disengagement --the nuclear loan package would seem the prime candidate.”

He went on to charge that the Westinghouse contract may have been marked by fraud from the beginning (an apparent reference to the allegations on commissions), that the plant did not meet promised specifications and that the cost of modifying the plant “is too burdensome.”

“We got damaged goods,” Budget Minister Alberto Romulo said recently.

“It’s like your lemon law (on faulty automobiles),” Maceda said of what Saguisag would be seeking. (Lemon laws on the books in many U.S. states, including California, permit aggrieved new car buyers to get their money back or a replacement vehicle when attempts to repair major defects fail or are prolonged).

Saguisag’s mission was to talk with lawyers in the United States to see whether “to negotiate, arbitrate and/or litigate the issues,” as Saguisag put it. At a press conference before his departure, he said, “I have never used (the word) repudiate with anything connected with the Bataan nuclear plant or with the bigger debt situation.”

Saguisag returned to Manila on Saturday and suggested that he would recommend to Aquino that the Westinghouse contract be tested in court. There is evidence that “may impel Westinghouse to negotiate and settle,” he told reporters.

A few days later, Saguisag said the Cabinet would take up the question of the Bataan plant no earlier than June 18. He said that while he was in the United States he did not meet with representatives of either Westinghouse or the Export-Import Bank.

Maceda said in an interview that the only members of Aquino’s 24-member Cabinet opposed to the approach Saguisag described in his pre-departure memorandum were Finance Minister Jaime Ongpin and Central Bank President Jose Fernandez, the point men for Aquino’s continuing attempts to renegotiate the foreign debt.

Figures put forth by government and private opponents of the plant vary, but two tell the tale of the financial problem facing the Philippines. For a nuclear plant that probably will never be used, the cost so far has been $2.1 billion, and the interest on the loans amounts to $350,000 a day.


Overall costs for the idle plant this year are expected to be $114 million, rising next year to average $240 million a year through 1993.

Government investigators have leaked charges that commissions paid by Westinghouse range anywhere from less than $20 million to more than $80 million. The original recipient is alleged to have been Herminio Disini, a Marcos crony who became a Westinghouse agent here. No direct evidence has been produced that the money got to Marcos. Disini, like Marcos, has left the country.

Westinghouse spokesmen in the United States deny that any illegal payments were made. In a statement issued last week, Westinghouse said the commissions paid to Disini, which it put at $17 million, had been investigated by the U.S. Justice Department and the Securities and Exchange Commission.

“These investigations found no basis for proceedings against Westinghouse,” the company said. “Westinghouse made no payments and knows of no payments made to . . . Marcos, directly or indirectly.” It urged the Philippine government to begin operations at the plant.

The safety issue was hotly debated under Marcos. Demonstrations at nearby towns were led by activist priests. Those protests did not seem politically motivated, but were soon reinforced by nationalist and leftist organizations with anti-American leanings.

Communist insurgents regarded the plant as a symbol of repression under Marcos and used it as a target for sabotage. Down the coast from the plant lies the toppled wreckage of 26 power transmission pylons blown up last year by guerrillas of the Communist-led New People’s Army.


The plant’s opponents produced studies by Filipino and American scientists that say the plant was built close to a number of extinct volcanoes and near offshore earthquake faults. Furthermore, they charged, the technology of the plant, built to a 1976 design, is already out of date.

At a recent press conference, Aquino said the safety issue was even more important than the question of money. Finance Minister Ongpin agreed that “safety is the primary consideration. . . . Especially after what happened at Chernobyl (the nuclear power plant in the Soviet Ukraine that exploded, emitting a radioactive cloud), the decision not to operate the plant at this time has been reaffirmed.” Westinghouse insists that the plant is safe.

“If we went ahead with it now, in the wake of Chernobyl, we would be lynched,” Saguisag said.

Campaign Pledge

Aquino, who made a campaign pledge not to put the plant into operation, has taken no action on suggestions that it be mothballed permanently. So far, the only consensus within her Cabinet is that the plant should not start operations. Mothballing reportedly would cost an initial $15 million, plus an additional $1 million a year. Scientists also say that converting the facility to burn coal or fuel oil would be uneconomical.

Ongpin, the finance minister, opposes any suggestion of repudiation and points out that little can be gained by scrapping the plant and selling off its equipment and material. The return would be about 10 cents on the dollar, he says.

Meanwhile, the Philippines faces the likelihood of an energy shortage on the island of Luzon if an economic recovery takes hold under the new government. According to the National Power Corp., a new coal-fired plant to produce the same amount of energy would cost $600 million and take three years to begin generation.


Cesar Virata, who was Marcos’ prime minister and finance minister, said in an interview that the decision not to operate the plant was based on political considerations, not safety or financing. He warned that there is little time left to move to alternative sources of energy if the economy picks up.

He said the Marcos government decided on a nuclear plant after the Philippines lost 25%of its petroleum imports in the 1974 Arab oil embargo “because of our Muslim problem in the south at the time.”

Both the International Atomic Energy Agency and the World Bank recommended nuclear power as feasible at the time, when the Philippines was 95%dependent on imported energy, Virata said.

The government decided to go to Westinghouse, the former finance minister said, “because they had the most experience.” He denied opponents’ charges that authorities had signed a contract with General Electric Corp. and then switched to Westinghouse when Marcos intervened in the negotiations.

Virata recalled that the “turnkey price” quoted by Westinghouse was $800 million for the reactor. An initial $300 million was estimated as the cost of interest during construction, bringing the whole project to $1.1 million before any income was received.

How did the cost reach the now-estimated $2.1 billion?

Virata cited rising interest rates in the late 1970s and early 1980s--most of the loans were based on floating rates--plus modifications and regulatory changes made after the nuclear accident at Three Mile Island in 1979 in the United States.


He questioned sharply the possibility of repudiating loans from banks only because of contract disputes with Westinghouse. “The creditor is very different from the maker himself,” he said.

Economists and financiers like Virata, Ongpin and Fernandez are leery at least about any move that makes international lenders nervous about the Philippines as a loan risk at a time when the whole foreign debt package is under review for restructuring to make payments easier for a financially strapped government.

Even proponents of getting money back from Westinghouse are careful about using terms like repudiation. “We like to say ‘rescission of a contract,’ ” Maceda said. The decision on what to do and what to call it will be made when Saguisag returns from the United States.

The plant, meanwhile, has been ready since last summer to load the nuclear fuel and begin operations. A staff of 700 maintains the facility.