Crossposted from Philippine Online Chronicles
Going green is in vogue and as imagery goes, “fashionably green” helps clean up the corporate black faces and darker hearts of even the most pollutive enterprises. To be specific, corporate social responsibility (CSR) is one of the modern three-word shibboleths that characterize this new century and it is one that corporations that pollute often claim they take seriously. Among those are energy companies that burn toxic fuels like bunker and coal such as the independent power producers (IPP) we used to condemn in the time of Gloria Arroyo.
Unfortunately, the IPPs are no longer villains under the government of Benigno Aquino III. Their highest executives not only sit beside Aquino and dictate energy policies but through bad advice Aquino has also lined up more toxic coal-based projects than had his predecessor. At least three are in the offing in the middle of urban communities where they can inflict the most damage.
Uncannily, these IPPs have some of the most ballyhooed CSR programs.
Never mind the inconsistencies. Hype sells. Obviously Aquino is not hesitant, or simply does not care to understand enough, to blindly buy into the heresy. As the Department of Energy (DOE) maintains that nearly a third of our energy sources are based on toxic and deadly coal-fired plants due to its cheaper values compared to bunker-fired and renewable sources, they continue to encourage its propagation.
The myopia is obvious.
The aspect of being cheaper naturally brings us to the question of costs. Following the policy of the government that compels aggressive coal-based programs from coal mining to toxic coal-fired facilities, the aspect of coal as inexpensive is related only to business costs. Business costs are either borne by the IPP, the government through subsidies and public infrastructure costs, or, at the end of the value chain, by electricity consumers.
Note the anomaly. In the business cost model, there is no accounting for any kind of cost outside of the bilateral contractual relationship between a producer and the end-consumer.
For the IPP, everything at the predevelopment stage can be capitalized and passed on as they enter the IPP’s financials. These include what communities charge as social costs such as community displacement, land and agriculture degradation, fish kills as well as crops burned to make way for generation facilities.
For pollution mitigating equipment such as scrubbers and waste water treatment plants to comply with front-end environmental requisites, these are charged as capital expenditures and are allowed a return on assets. Nothing is incurred without concomitant revenues.
It is important to remember that generating costs at the development stage are granted Investment incentives and tax holidays. Such do not compel cost-reduction and are even offset by tax free pre-operating revenues.
Down the line electrons generated incur transmission and distribution charges. However regulated, costs are merely tacked on and charged under a government franchise and employed under a government contract.
When we come upon the host communities, these costs are not only substantial but they also do not bear related revenues from which the communities can source mitigating cash flows.
Let us list some of these and then give actual and concrete examples from a host currently victimized.
The most obvious at the predevelopment stage of a coal-fired power plant’s erection is the loss of livelihood for host communities. For a major base load coal-fired facility set up northwest of Manila in the late 1990’s as much as 198 host families were displaced.
Strangely, in financing the facility through the Export Import Bank of Japan (JEXIM) the bank required as a loan conditionality “100% social acceptability”.
That did not happen. In 1996, the following was reported. One, there was the lack of potable water in the plant’s resettlement areas. Two, it was likewise reported that the relocation area was vulnerable to soil erosion and flooding. Three, it was further reported that there was a lack of job opportunities in relocation area. To worsen the situation there was also a delay in the requisite transfer of titles and substantial disputes in their compensation values.
As expected, between 1992 and 1994 locals registered strong opposition. Unfortunately, to force the relocation, the government applied emergency powers to construct the plant.
In 2002, a JEXIM Operations Evaluation Mission (OEM) reported that the coal-fired plant was in “conformance with environmental standards” and that it bore “moderate socioeconomic impact” on the community.
Never mind that the plant sourced cooling water from a life-giving river and discharged wastewater and effluents into a nearby bay. Never mind also that coral reefs offshore were reported to be “bleached” and dead. Finally, never mind that chemical analysis of fly ash samples in 2002 showed deadly arsenic, chromium, lead and mercury contamination.
Forget Adam Smith’s invisible hand. All these have costs that the community cannot bear. Note the costs of agricultural degradation wrought by the ambient toxic coal. Fruit yield in the area went down by 33%. Fish yield likewise fell to 50% while there was a significant loss of seaweed income in the bay.
Worse, to compensate, all the IPP does for hosts is to include in its operating expenses a CSR program to fund fiestas, sports tournaments and provide opportunities for menial and cheap labor numbering less than a hundred. Not only are these tax shelters but these are also tacked on to tariffs which compensate for 100% recoverable costs.
From these let us draw some conclusions.
One, there is a disconnect between what compels environmentalists and the business objective.
Two, CSR is a function of its impact on business financials, as pre-development costs, capital expenditures (CAPEX) or operating expenses (OPEX). Social responsibility is not part of the equation.
Finally, for the IPP, costs, unless recoverable, will not be incurred. Thus, CAPEX is determined by standards, and OPEX, including CSR will always be at a minimum.
There is nothing “green” in coal. Coal kills and its costs are much too expensive. That perhaps is the only conclusion we should be taking away from this debate.