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[ANALYSIS] China’s creeping influence in PH telco, electricity, water

JC Punongbayan
[ANALYSIS] China’s creeping influence in PH telco, electricity, water
China’s creeping influence and encroachment in our vital infrastructure shows we ought to be extra careful especially where the nation’s security is at stake

 

Lawmakers are busy passing a bill that would make it a lot easier for foreigners to invest in public services like telco and transportation.

If House Bill 78 eventually becomes law, it will mean that only a handful of sectors (namely, electricity transmission and distribution, as well as water pipeline and sewerage distribution systems) will be deemed “public utilities” subject to the Constitution’s 60-40 ownership rule.

All the rest will be open to foreign investments, and can only be considered public utilities upon the recommendation of two economic agencies, and if Congress passes separate laws to that effect.

Lots of people, including economists, support House Bill 78. By defining exactly what “public utility” means, they hope amendments to the 84-year-old Public Service Act will promote economic competition and bring down costs.

Opponents fear, however, that opening the floodgates to foreign investments could jeopardize our national security.

There are good arguments on both sides. But here I want to point out that one country in particular – China – has already taken hold of key segments of our utilities, specifically telco, electricity, and water.

This, despite the supposedly stringent foreign ownership restrictions in our Constitution.

In short, China is encroaching not just on our territories and resources in the West Philippine Sea, but also on our vital infrastructure. This should give some pause for thought among lawmakers moving to liberalize our public services and utilities any further. 

Telco

Let’s start with Dito Telecommunity, which was selected by government in 2018 as the third telco player to break the incumbent duopoly of PLDT-Smart and Globe.

Competition in telco is very much welcome. We can all attest that signal and data speeds can often be spotty, and customer service downright crappy.

But I noted before that the bidding for the third telco wasn’t really a bidding at all. Competitors dropped out mysteriously in the run-up to bidding day. In the end, the only firm that came forward was Mislatel, later rebranded as Dito Telecommunity. (READ: Disturbing red flags in the 3rd telco selection)

The key fact about Dito Telecommunity is that it’s a consortium between Udenna Corporation (owned by Davao-based tycoon Dennis Uy) and Chinatel, the largest fixed-line provider and the third-largest mobile telco provider in China.

Crucially, Chinatel is a company owned by the Chinese government. Through this firm, China owns 40% of Dito Telecommunity.

Chinatel’s involvement in Dito Telecommunity is unsettling for a number of reasons.

First, Chinese law mandates that state-owned companies like Chinatel submit intelligence to the Chinese government. One study found that Chinatel had misdirected large amounts of internet traffic from the US to China, allegedly for surveillance purposes.

Second, Dito Telecommunity signed a deal last year with the Armed Forces of the Philippines (AFP) allowing the firm to “build facilities in military camps and installations,” ostensibly to help beef up the AFP’s ICT infra.

Military experts themselves admitted in an internal report this deal could lead to interception, eavesdropping, and jamming – but ended up saying the overall risk was “low.” Independent cybersecurity experts say the deal is far more dangerous than the military cares to admit.

Dito Telecommunity also wants to erect similar structures in police camps, but this plan hasn’t come into fruition yet.

Electricity

Less known but equally disturbing is the fact that another state-owned Chinese firm managed to gain substantial power in our electricity market, particularly in its transmission segment.

Transmission towers – those rows of steel towers crisscrossing expressways and delivering power from the mountains to towns and cities – are massively expensive. It makes economic sense for just one firm to provide them, and that so-called “natural monopoly” is called the National Grid Corporation of the Philippines (NGCP). 

Disturbingly, NGCP is a consortium involving the State Grid Corporation of China (SGCC) – yet another firm owned by the Chinese government. Akin to Dito Telecommunity, 40% of NGCP is owned by China (via SGCC).

How did that happen? NGCP secured a 50-year franchise from Congress back in 2008, during the term of former president Gloria Macapagal Arroyo – a known China ally.

Last year CNN obtained an internal report warning our lawmakers that Chinese engineers maintain tremendous control over “key elements” of NGCP’s transmission grid system. Ominously, the report said “power could in theory be deactivated remotely on Beijing’s orders.”

China’s outsized role in the transmission sector has long been a source of worry, even for the previous administration. The recent leaked report tells us the security risks aren’t going away. In fact, they may be compounding.

It should be “cause for concern,” said retired justice Antonio Carpio.

Water

Finally, under the Duterte administration, China also tapped into a third vital sector: water.

But here China entered using a loan agreement, unlike in telco and electricity.

Despite the current lovefest between Manila and Beijing, only two loan agreements have been signed so far between the two: one for the Chico River Pump Irrigation Project, another for the New Centennial Water Source-Kaliwa Dam Project.

The Kaliwa Dam is notable because government is touting it as a much-needed solution to the growing water problems of Metro Manila.

I wrote before that the bidding for Kaliwa Dam bore many red flags. Metro Manila’s water regulator bid out the project exclusively to Chinese contractors, and ended up selecting China Energy Engineering Corporation (CEEC) – again, a firm owned by the Chinese government. (READ: Kaliwa Dam: Is China’s involvement cause for concern?)

The notoriously austere Commission on Audit (COA) itself reported that the bidding for Kaliwa Dam was likely rigged.

According to them, “the two bidders/contractors were included merely to comply with the at least 3 bidders requirement as stated under the procurement law.” Far from being competitive, the bidding was “a negotiated contract from the inception of the bidding process.”

CEEC also failed to submit required documents on time, and COA said this might invalidate the loan agreement for Kaliwa Dam, which amounts to P11.05 billion from China Eximbank.

Although famous for its majestic Three Gorges Dam, China also has a spotted track record in building dams especially in poor countries. China is also known to leverage on such projects politically in what’s known as “hydro-diplomacy.”

Beware too much openness 

Don’t get me wrong. Opening up some sectors of our economy to foreign investments is not necessarily bad. It may even work wonders.

For instance, Indonesia’s Go-Jek sought to break the current monopoly status of Grab in the ride-hailing business. But our government denied entry to Go-Jek because it’s a foreign-owned company. Initial opposition to Angkas, a well-loved motorcycle-hailing service, was also grounded on foreign ownership issues.

Yet China’s creeping influence and encroachment in our vital infrastructure shows we ought to be extra careful about greater openness – especially where the nation’s security is at stake.

Oddly enough, House Bill 78 does not mention the term “national security” in its criteria for new public utilities. What gives? – Rappler.com

 

The author is a PhD candidate and teaching fellow at the UP School of Economics. His views are independent of the views of his affiliations. Follow JC on Twitter (@jcpunongbayan) and Usapang Econ (usapangecon.com).  

 

JC Punongbayan

Jan Carlo “JC” Punongbayan, PhD is an assistant professor at the University of the Philippines School of Economics (UPSE). His professional experience includes the Securities and Exchange Commission, the World Bank Office in Manila, the Far Eastern University Public Policy Center, and the National Economic and Development Authority. JC writes a weekly economics column for Rappler.com. He is also co-founder of UsapangEcon.com and co-host of Usapang Econ Podcast.