(This article was co-written by Sabrina Gacad)
The Asian Development Bank (ADB) and the Washington-based Clean Technology Fund are poised to lend the Philippine government millions of dollars to fund the roll-out of 100,000 units of “energy effective electric vehicles” (EEEV), or alternative fuel vehicles, in the form of electric tricycles, or e-trikes, that will be handed to local government units for operation, from 2013 to 2016.
Their argument is simple – clean technology is good, therefore tricycles running on clean technology must be superb. And we would like to help our friend, the Philippine government, to profit from such superb technology and build a clean-technology public transport industry so we will lend them their initial investment.
This is how the project is expected to run: ADB lends the Philippines US$300 million, the Clean Technology Fund gives US$105 million, and the Philippine Government provides US$99 million for the project as its counterpart fund. The funds will go into the Land Bank of the Philippines to pay for the actual electric tricycles sourced most likely from Taiwan, Japan, South Korea, Vietnam or China. “Creditworthy” local government units (LGUs) will be made guarantors of the loan per unit of electric tricycle, and are likewise expected to distribute e-trikes to local operators and/or drivers and collect the boundary from them.
Now who could be against such a project?
There is no disputing the fact that vehicles running on alternative energy are good for the environment. Today, there is universal recognition that coal and fossil fuels are the main contributors to global warming and climate change, and their fluctuating prices cause economic instability, leaving peoples in the developing world vulnerable to the periodic shocks of the market. It is not surprising therefore that alternative energy takes centerstage in issues of sustainable development, and that people expect regional development banks like the ADB to support alternative energy projects.
However, the program design and the loan package are riddled with problems and loopholes that defeat the the objective of promoting and developing the alternative energy vehicles industry in the Philippines. It also leaves the project highly vulnerable to large-scale corruption.
Dumping E-trikes instead of producing them
The first basic problem that will inhibit the growth and development of the e-tricycle industry in the Philippines is the fact that the government will have to import fully-assembled units and its various spare parts and components from the global production line. This runs counter to the experience of our Asian neighbors such as Japan and South Korea who succeeded in developing national industries. It was not through wholesale importation that their industries developed, but through government’s support for the development of their industry’s productive capacity, including local enterprises’ access to foreign technology.
According to reports, the Electric Vehicle Association of the Philippines and the Motor Vehicle Part Manufacturers Association of the Philippines anticipate a P21 billion industry that rides on the roll-out of e-trikes. However, a closer look would reveal that the said amount is only the total peso equivalent of 100,000 units of electric tricycles, worth US$5,000.00 each. Even from a lay-person perspective, it is difficult to claim this potential for the Philippine economy if the entire electric tricycle industry will be based solely on importation of finished e-trikes or assembly of component parts.
The experience of the automotive industry in the Philippines should be instructive in the government’s efforts to build an electric tricycle industry in the country. Let’s take the example of Ford in the Philippines, which, at the end of June, announced the closure of its local assembly plant in Sta. Rosa Laguna by next year. As Ford moves to greener pastures in Thailand, the country loses the only company that exports vehicles assembled in the Philippines. In news reports, the Department of Trade and Industry said that the Ford closure emphasized the need for the country to fill in the gaps in the supply chain and address technological needs to improve our automotive industry’s viability.
This is precisely the point that the electric tricycle project is missing. The way to build a sustainable industry is not to import fully assembled e-tricycles or to import their components and assemble them here. For this project to be successful, the government should encourage the local manufacturing of vehicle components and the mastery of e-tricycle technology. We should not simply rely on assembly operations that may leave the country at any given time, dictated by the whims of profit.
E-trikes, patronage politics, and elections
The second major problem with the electric tricycle program is the fact that the ADB expects local government units to run an e-tricycle business, and at the onset of election year! True to form, the ADB’s calculations and projections disregarded crucial on-the-ground realities that will make or break the project. In this case, this crucial reality is that of patronage politics prevalent at the local level especially during election time.
It is common knowledge that politicians’ main interest is to win elections, and each and every Filipino is very familiar with how politicians will use each and every possible opportunity to do exactly that. What the ADB missed, or perhaps deliberately classified as exogenous to the economic model of a successful e-tricycle business, is the fact that politicians are wired in three-year election cycles that prioritize short-term, high-visibility, wide-coverage projects. Entrepreneurs, on the other hand usually allocate at least a period of 5 years in order for their business venture to stabilize, expecting to run losses at the beginning of the venture, to be recouped later. On this basis alone, a successful electric tricycle business is certainly not within the ambit of local government officials’ priorities.
More importantly, one can already imagine how a fleet of shiny new electric tricycles will win the electoral race for any local government official. From handing out e-tricycles to chosen political allies and loyal constituents, to announcing free rides to anywhere within the municipality or city, and any other creative use incumbents could have for this freebie from the ADB, it is certainly a perfect complement to the tried and tested methods of campaigning and vote-generation.
Let’s remember that what drives the e-tricycle demand in this case is not a private sector that intends to run a business, but government officials whose main motivation is reelection. Building a sustainable e-trike industry does not enter into their calculations.
ADB and the energy fiasco
Finally, and most importantly, we must take into consideration the Philippines’ experience with the ADB in the energy sector. Can we really trust an agency that prescribed the privatization of the electricity industry that led to the country’s current energy crisis?
From 1998 to 2002, the ADB funded the Philippine Power Sector Restructuring Program (PSRP) which gave birth to the highly-controversial the Electric Power Industry Reform Act (EPIRA). The entire loan package was directed mainlyt at the development of the electricity market and privatization of power generation assets and transmission and distribution lines. According to the data gathered by the Freedom from Debt Coalition, the loans amounted to a total of US$790 million, while another US$ 5 million went into the country in the form of technical assistance.
ADB through PSRP and EPIRA orchestrated the sale of the country’s power generation assets at a big discount to the private sector. This also created the Wholesale Electricity Spot Market (WESM), in effect transferring the government monopoly over energy pricing to a private sector oligopoly. Electricity rates are now dictated by the onerous terms of the independent power producers in take-or-pay schemes that mandate consumers to pay for all electricity generated even if it wasn’t used. On top of all that, the National Power Corporation’s debts ballooned from P943 billion in 2001 to P1.24 trillion in 2009. The results of EPIRA have been devastating: not only has it failed in its promise to reduce electricity prices, it propelled the Philippines to having the most expensive electricity in Asia.
Like privatization, the e-trike project is another bright idea from the ADB, and the country can no longer tolerate another bright idea from this institution. We can’t be guinea pigs for another project that stands a dubious chance of addressing the environmental crisis but will surely place us deeper in debt.
Redesigning the E-trike initiative
Promoting clean technology in the Philippines has a wide support base coming not only from within government and the private sector but also from civil society. As Red Constatino of the Institute for Climate and Sustainable Cities (iCSC) puts it, “We support this administration, and it is precisely because of our support that we are discouraging them from executing the electric tricycles project the way it is designed.”
Proponents of clean technology, including a host of civil society organizations, propose a major change to the project: let it be an example of government and private sector cooperation in the formulation and implementation of industrial policy.
In particular, the recommendations are:
- Completely remove the local government units’ participation in guaranteeing the loan and the distribution of the electric tricycles
- Promote the viability of alternative fuel vehicles for public transport by encouraging small and medium scale enterprises to enter the various segments of the industry, from technology transfer to manufacturing to sales and servicing. One way to do this is by lowering lending interest rates and promoting an investment climate that is more oriented towards the needs of small and medium scale enterprises
Electric vehicles are not a new phenomenon in the Philippines. iCSC in particular operates domestically-made electric jeeps in Makati City. In the pipeline are projects with other cities across the country, and the roll-out of other electric public utility vehicles such as the eTrike, eQuad, and eCoach alongside various models of eJeeps.
Obviously, the people behind this industry have developed substantive experience in managing the technology and marketing the vehicles, and, at their own pace, are developing good alternatives for the public utility vehicles industry.
In fact, if the government wants a more active participation in the industry, then a better option to explore is to subsidize the various enterprises that have already begun the research, development and operation of electric vehicles. The general idea is to distribute funds to industry players who are in the business of making this technology work – from researching the effective designs for vehicles, to testing and finally selling or operating the vehicles for public consumption.
Thus far, the country’s experience with electric public utility vehicles proves that this is indeed a viable industry. If the question is, should the government promote this shift into renewable energy resources for the transport sector, then the answer is definitely a “yes.” However if the question is should it be a partner of a badly designed project such as the e-trike project promoted by the ADB, the answer is a resounding “no.”
Let me reiterate, the government should not intervene in a manner that would out-run the pace at which the industry is already naturally developing. If the government feels the need to put money into the industry, then it would be better off channeling the money to those who have the intention to make the project work. This will ensure that the riding public actually gets to use the technology and the money is paid back. And finally, and most importantly, learning from the wealth of experience the Philippines has had with the ADB, the government should, at all costs, avoid ADB “support” for the project, especially since it will be our people who will ultimately pay for another failed ADB initiative.