# **PHILIPPINES: THE POLITICS OF POWER**

## **1. Introduction**

It is commonly known that public utilities in developing countries are particularly susceptible to political capture and that the use of these utilities for the purposes of rent-seeking is a major cause of their poor performance (Shirley 2002, Lal 2006). What is less well known however, is what drives this political capture in specific contexts — under what conditions politicians are more likely to interfere in the day-to-day operations of utilities and when will they have less incentive to do so. This paper takes advantage of unique intra-country variation in the Philippines power sector to show that rents do indeed drive capture, but the effect is contingent on the nature of local political competition.

Electric cooperatives (ECs) provide power to roughly half of the households in the Philippines and are the main, if not exclusive, distribution utilities for consumers who live outside of the major metropolitan areas. While the overall financial health of the sector has improved steadily over the past decade, there is great diversity among the 119 cooperatives that exist, and many cooperatives continue to have high technical and financial losses, and require government subsidies. An earlier World Bank study of the sector identified a variety of geographical, regulatory, and corporate governance factors behind this variation in performance, but speculated that undue political interference in management as the core issue, and the minimization of political interference and the maximization of professional management as the heart of the reform agenda for the sector (World Bank 2000).

This paper takes these observations as a point of departure and explores what explains the variations in the level of politicization of ECs across the Philippines. If it can be accepted that _ceteris paribus_ , a public entity such as an electricity cooperative will perform better under a professional manager with relevant technical expertise and experience than otherwise, then an alternative way to pose the same question would be: why are some ECs used for serving the interests of politicians and a small number of their supporters through, for example, regular interference in day-to-day management in matters involving procurement, personnel recruitment and management, billing, and electrification while others are left alone to be run professionally by the ECs‘ managers? This research question draws on the earlier finding that the level of politicization has a major impact on EC performance, and therefore a framework that explains the variation in levels of politicization will also explain a large part of the variation in EC performance and therefore electricity service provision in the Philippines.

The paper‘s main contribution is the development of an analytical framework, what we refer to as the ̳political economy of nested capture‘, to explain this variation. To put simply, we hypothesize that the level of politicization of an EC is determined by the incentives of, and the interactions between, _local_ and _national politician_ s, where the concepts of local and ―national‖ are context specific. A local politician is defined as one whose electoral jurisdiction lies within an EC‘s catchment area or, to state in another way, an EC catchment area contains two or more such electoral jurisdictions. By contrast, a national politician is defined as one whose electoral jurisdiction includes two or more EC catchment areas. In the Philippines context, given that a typical EC will include multiple municipalities and congressional districts, mayors and national congressmen can be considered local politicians. By contrast provincial governors usually, and in the extreme case the president, are national politicians.

These jurisdictional differences imply different motivations for local and national politicians with respect to the EC. Each politician faces a choice: to use the EC as a source of rents to finance 2