Press Release
September 25, 2013

Releases should be subjected to line-item budgeting in GAA
Recto: Use Malampaya fund for power rates reduction, AFP modernization

Senate President Pro Tempore Ralph G. Recto has filed two separate measures seeking to make use of the Malampaya funds for the reduction of power rates and to speed up the modernization program of the Armed Forces of the Philippines (AFP).

The two bills, Recto said, also mandate increased transparency and accountability on the use of the gas project funds by requiring that the disbursements be subjected to line-item budgeting in the General Appropriations Act (GAA).

"The utilization of the Malampaya Fund is currently not under scrutiny in the budget process. This is why I proposed to make use of the fund for two purposes and incorporate them in the GAA," he said.

"I offer three choices here: we can either use it to reduce power rates or spend it to modernize our AFP, or do both."

In Senate Bill No. 465, Recto said the Malampaya funds should be used to reduce power rates by using it to pay for the debts of the National Power Corporation (NPC) that are currently being passed on to power consumers.

In particular, he proposed to allocate the net national government share from the Malampaya Project to pay the NPC's Stranded Contract Costs (SCC) and Stranded Debts portion of the Universal Charge (UC).

Under the Electric Power Industry Reform Act (EPIRA), a UC will be imposed on all electricity end-users to cover payment of NPC's stranded debt and stranded contract costs, he added.

"Instead of using Malampaya Fund to finance non-energy related programs and projects of national government agencies, the said Fund would now directly benefit power consumers," Recto explained.

If enacted, he said that the proposal would provide timely and substantial relief to power consumers in the light of the February decision of the Energy Regulatory Commission (ERC) to set the UC for the recovery of NPC's SCC at PhP0.1938/kWh, which became effective in March.

In Senate Bill No. 466, the Batangas lawmaker proposed to channel a portion of the proceeds of the Malampaya fund to finance the AFP modernizatiolln program in order to enhance the country's capabilities in addressing internal and external security challenges.

"The emergence of internal and external security threats has been putting the capabilities of our armed forces to the test. As we stagger to protect our borders in international territorial disputes, our forces struggle to address internal security threats that continue to persist," Recto said.

He said it was necessary to bolster funding support for the AFP as required under Republic Act No. 7898, otherwise known as the "AFP Modernization Act", as amended by Republic Act No. 10349, establishing the "Revised AFP Modernization Program."

He recognized the "slow pace" in implementing the AFP modernization program due to the lack of funds coming from the national government.

"While the law provides for a ceiling for annual appropriations for the program, in reality, only a small fraction of it was provided," Recto said.

"This bill seeks to include the Malampaya Natural Gas to Power Project as one of the fund sources for the AFP Modernization Act Trust Fund. Under this proposed law, thirty percent (30%) of the annual net government share from the Malampaya proceeds will be earmarked for the implementation of the revised AFP modernization program," Recto explained.

According to latest data, the MNGP has an aggregate government share amounting to P136.5 billion as of June 30, 2013.

"Such amount can be tapped to substantially support the P75 Billion funding requirements of the AFP modernization program, for the acquisition of 39 projects intended to boost the armed forces' capabilities in the next five years, which includes acquisition of communications equipment, lead-in fighter trainer jets, closed air support aircraft, long-range patrol aircraft, radar systems and engineering equipment, among others," he stated.

In fact, he added, President Aquino himself recognized the MNGP as a source of fund for efforts to modernize the AFP when he authorized the release of P5.32 billion from Malampaya funds to reinforce the AFP's territorial defense capabilities, including the purchase of a USS Hamilton-class cutter for the Philippine Navy.

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