Tongue In, Anew

Meralco vs. The Mafia

On the Offensive

The past days, talks circulating in business circles, among other things - like, a possible PSE stock market crash, Hanjin's bribery/extortion scandal in Misamis, the oil price hitting $200 - focused also on the government's impending wrestling of management of the country's biggest electricity distributor, Meralco, right after Gloria Arroyo spoke before businessmen renewing an old promise she made during her second SONA which as always, she never fulfills anyway. That signalled the start of an all-out offensive against the Meralco-controlling interests of the Lopez family, long perceived as one of Arroyo's harshest critics. The Lopez media giant, ABS-CBN has allegedly been constantly pressured to stop its coverage of Senate proceedings which centered mainly on recent corruption issues that are traced right to the doorsteps of the Presidential Palace.

Gloria's speech, by the way, emphasized Meralco should not pass on to consumers the systems losses - one of the very few issues I agree with her on - was a topic of a comment I wrote in Ellen's blog the day before Gloria's speech. Whether coincidental or prophetic, or not, systems losses is only the other rate in this EPIRA-unbundled electricity price regime that Meralco has direct control over.

Gloria has given marching orders to her department secretaries to file several petitions before the Energy Regulatory Commission to bring down the price of electricity. According to a Malacañang Press Release,

Among the petitions expected to be taken up by the ERC on May 6 are the following: 1) to enjoin Meralco from buying electricity from Wholesale Electricity Spot Market (WESM) at peak hours; 2) to ensure preferential treatment for poor households and power intensive industries in the distribution of transfer charges by Meralco; 3) prohibit Meralco from charging system loss on consumers; and 4) to require Meralco to impose the same charge as that of Visayan Electric Company (VECO), or Davao Light and Power and 140 other power coops around the country.
The President also instructed the National Power Corporation (Napocor) to reduce to P4.11/kilowatt from P6-P10 it charges Meralco. Napocor charges Luzon electric cooperatives P4.11/kw.

The Charges

According to Gloria, Meralco should stop buying its peak power from the Wholesale Electricity Spot Market (WESM), an EPIRA Law offshoot that oversees direct-to-producer pre-sales which purpose is to provide wholesale power buyers a choice of suppliers thus encouraging competition that will result to lowering of prices.

Further, she aims to prevent Meralco from passing on systems losses to the consumers. Presently capped st 9.5% of total billing by the same Law, the gov't nevertheless subjects this item to EVAT.

GSIS President, Winston Garcia, goes a step further, he wants to audit Meralco's financial statements to see if Meralco is overcharging its clients. He threatens, directly and indirectly, to take full control over management of the country's biggest utility firm should Meralco continue to hide documents he had been seeking, most especially supply contracts with the Lopez flagship First Philippine Holdings Corp.'s IPP plants. He has been complaining about getting the reports just a day or two before the board meetings leaving him no time to study them.

He also doubts Meralco's insurance agent, Republic Surety, which is based in Bahamas, as he says he has been informed that Republic Surety charges the company with excessive rates. This creates a gray area since he is a competitor, with GSIS being in the insurance business itself.

Garcia's brash, arrogant attitude has been a problem in the last board meetings, and according to the grapevine, it has resulted in the quitting of 2 well-respected businessmen from the board - industrialist Washington Sycip and an ex-Napocor president. Much earlier, the Corporate Secretary wanted no more of Garcia's bullying, and was the first to quit.

Garcia was also responsible for blocking the nomination of one highly-qualified replacement, Monico Jacob - PNOC and Petron president at the time of Cory - for the flimsiest of reasons. I know Jacob to be the guy who co-signed with Cory the BOT contract (with a company I was working for at that time) to construct a 300-MW combined cycle power plant. I am very familiar with this contract because it was signed, together with four or five other IPP deals in Malacañang, on 5:00 PM of June 30, 1992 - in the LAST FEW SECONDS of Cory's presidency. I was also the one who personally ripped off the machine the fax from Guido Delgado, Jacob's successor in Ramos' team, who informed us the cancelation of the same contract. That contract, by the way, was the most expensive bid at $0.06 per kilowatt or by today's exchange should have cost us consumers P2.52 per. But even then, it is still WAY CHEAPER than Napocor's rate to Meralco of P6-P8!

On another front, Sen. Miriam Santiago likewise lashes out on Meralco's management whom she collectively referred to as a syndicate. "Iyang Meralco na iyan, dapat pasabugin na iyan. Pugad iyan ng mga sindikato, mas grabe pa yan sa Bureau of Customs," she averred while admitting she has no evidence. She also concedes Meralco is better off in the hands of the private sector than with government.

We also heard but briefly, Arroyo's legal adviser Apostol talk about Meralco's "greed" and concurrence towards Garcia's planned takeover of management hours before he again stuck his foot in his mouth; the new House Speaker ordering the energy ignoramus presidential son who chairs the Energy Committee to begin his investigations (as if he was never given instructions at home to do so); and some other government functionary ready to howl, grunt, and moan the moment the baton was raised.

The Response

Noting that the charges were serious and with no less than Gloria leading the offensive, obviously on Garcia's prodding, Meralco used its media muscle to make people listen to what it had to say. Meralco's president, Chito Francisco, who probably made Garcia and the other attack dogs drool for his enviable position, defended Meralco on TV, radio, newspapers and the web and deflected the blame on government itself and on its proxies over at Napocor. I even saw Christian Monsod, also a Meralco director in tandem with Francisco explain on a talk show:

• That Meralco buys about half of its electricity from Napocor and half from the Lopez-owned IPPs;


• That the price of power from the 2 natural gas-fed FPHC plants in Sta. Rita and San Loranzo and the coal-fed Quezon Power are actually cheaper than that of Napocor;


• That they have "maximized" their draw on both contracts with Napocor and the IPPs that they have no choice but to go to WESM for the extra peak-time supply;


• That it was impossible for Meralco to immediately provide anyone who requests it a complete set of financial documents annexed with contract copies, purchase orders, etc. (as Garcia demanded) if all the other 80,000 stockholders would be doing the same.

The first three explanations are plausible, but although I would disagree with the last, there are good reasons why they deliberately keep these records from Garcia, which soundness I will explain later.

Meralco, according to its website has:

• Reduced rates for companies in economic zones of PEZA through an economic zone program earlier signed between Meralco and the National Power Corp. (NPC). This will help keep industrial rates down and make the country’s exporters more globally competitive
• Bought power from Independent Power Producers (IPPs) at lower cost. (To see how much Meralco buys its power from suppliers, download this table showing the breakdown of its charges to Economic Zones.
• It also shows the breakdown of its buying prices from the different sources, clearly showing that the Napocor and WESM-acquired power are the culprits in the higher cost of electricity.
• And another one, a presentation supposedly made before the so-called Power Sector Stakeholders' Meeting organized by the-energy-moron-who-heads-the-energy-department.

Yesterday, it was FPHC Chairman Oscar Lopez all over the news who was at the ends of his wits and dared government to buy the family's shares in the power giant if it believed it can do better. Except for the ambitious Garcia, no other Gloria lapdog seemed to be pursuing the takeover line and retreated back to playing the It's-Garcia's-call hand.

Similarly, the Energy Regulatory Commission has joined the fray and issued a show cause order to Napocor to explain why it has not applied "to recover P10 Billion worth of generation and forex-related costs" which has an effect of overcharging that amount, an equivalent of P0.20/KWh, to the consumers. A question conveniently eluded by Napocor president Del Callar by declaring he is ready to give more than 20 centavos reduction in two weeks. But that doesn't absolve them of overcharging. Remember, the Supreme Court voided a previous ERC approval for Meralco increase by the mere technicality of non-publication, now Del Callar wants to go scot-free by giving a bigger reduction, never mind if its late by two years!

Finally, it was the business groups' and the opposition members of both houses' calls that have been more likely the growing consensus: reduce the power rates, but include all other options and leave Meralco Management to private businessmen!

Conclusion

Personally, I see nothing wrong in seeking ways to reduce the cost of electricity. In fact it should have been the concern of this administration from day one! We can't hope to be noticed in the investors' radar screens when the cost of energy in this country is the second highest in the whole of Asia, next to Japan. It is the same culprit perhaps, that has largely promoted OFW migration and stunted the growth of its ugly cousin, jobs generation.

The energy leaders in all branches of government are a collection of the energy ignoramuses of the worst kind - the always-clueless deflated soccerball Energy Secretary whose best known competence is keeping quiet in the corner where he was last kicked; a Senator with an outstanding legal aptitude who is nonetheless a moron when you speak of even just the basic Laws of Ohm or Kirchoff; and a presidential son whose only credential is that - a presidential son.

Forget that as early as her first SONA, Gloria has already promised back then to bring the cost of electricity to rates affordable to the masses. Sure, we had EPIRA Law passed by her dummies in Congress in 2001, but what has EPIRA achieved? First, it "unbundled" the rates in preparation for the privatization of the transmission and generation sectors which so far had all been scandalized by rigged biddings favoring the Mafia. EPIRA was also successful in "hiding" the Purchased Power Adjustments - the burden that consumers had to pay for excess power not even consumed, it now forms part of "generation charge" whether a single watt has been produced, transmitted and used OR NOT.

EPIRA also gave us WESM, the spot market mechanism that was responsible for Napocor's price spiral last summer, from about P5/KWh to P9 when its purpose was to "encourage competition resulting in the lowering of electricity prices". Total failure there.

The Power Sector Assets and Liabilities Management (PSALM) another product of EPIRA now headed by former Soriano protegé, Jose "Nono" Ibazeta, drew flak recently when it disqualified a consortium headed by mining magnate-brothers Buddy and Manny Zamora who pre-announced their bid of $6B for the whole of TransCo apparently after sensing that the Bid Committee is hell bent on demolishing all threats to the victory of Monte Oro Resources and Energy, known widely in the energy and mining business as the "Mafia Team" composed of FG's golf and business buddies (and former Ibazeta partners whom we now know bought out Broadband Philippines from Joey De venecia III, among other ventures) Ricky Razon of ICTSI, Endika Aboitiz of the second biggest private energy operators under the flagship Aboitiz Energy Ventures, Andy Soriano III and other small fish collectively called the "Malacañang Mafia".

The superior bid of $6B notwithstanding, PSALM awarded the prized trophy, TransCo to Monte Oro for a measly bid of $3.95B!

Prior to that PSALM experienced 3 failed biddings in two years. No one was bidding for Masinloc unless there was an assurance of a buyer of its power output. Napocor of course turned to Meralco, I presume, with special power rates just so the bid pushes through. That turned the tide and AES, a US-based corporation won the Masinloc plant for $930M, which I must say is too steep for an old coal plant that operates only at 25% of its capacity. Rule of thumb price for a similar plant is $1 Million per Megawatt. At 600MW, $930M is a jackpot. That's not all, AES claims it needs to pour in additional $1B to rehabilitate the plant and double its present capacity. Unbelievable. Now where do they plan to get the money to pay their loans to IFC for that purpose? Correct, from generation charge. And since the power sector will not be deregulated anytime soon, it smells like a possible loan default would be inevitable. Hey, don't tell me this loan is covered by another sovereign guarantee, please!

Aside from 5 small and 2 major hydroelectric generators, which loot has been divided between the Lopezes and the Aboitizes, only Calaca Coal I was the other large-size plant successfully privatized together with Masinloc. PSALM is yet to provide the tender docs for the soon-to-be-auctioned geothermal assets that will surely attract straightforward bidders but will also appeal to the lust of the drooling brokers, commissioners, and of course, the Mafia Team.

Now back to Gloria's speech, I cannot chew, much less digest what she says about buying power OTHER THAN from WESM during peak hours. Please be reminded that WESM is actually 80% Napocor and Transco, 19% Meralco, and 1% small producers. Is she now sales-pitching for her Cebu allies Aboitiz? It's a no-brainer that Meralco will buy from the more expensive supplier when there are cheaper alternatives, isn't it? And look at her examples, she said Meralco should be buying the same prices of VECO and Davao Light. Again, an Aboitiz sales pitch, since both distributors are owned by AEV. In local parlance, "Halatang-halata". Meralco can buy only so much from any plant, and buy only standby from the thermal plants with a side contract on rebates for unused fuel since the full capacity won't be utilized anyway. Buying from VECO's Visayas and Mindanao plants is stupid since there are not much differences in generation costs that would offset the extra premium to TransCo for the longer end-to-end transmission distance. Further, Aboitiz would surely sell to Meralco the more expensive power, leaving the cheaper ones sourced from geothermal and hydro for their own consumption, making a fatter profit overall.

I need not dwell on Napocor since it is common knowledge that Napocor is the most mismanaged GOCC, with its twelve Vice Presidents, already paid their retirement and rehired by the same company. From P851B in debts and obligations at the end of 2001, by 2006, its debt stock ballooned to P1.2 Trillion and that's after the government absorbed P200B in 2004 as mandated by EPIRA. We all know that Gloria forced down Napocor's price for pogi points in her re-election campaign then. But that was the seventh year of continuous losses from paying the IPPs. This, while the national government continues to absorb a third of the total debt stock of Napocor. As of end-2007, it still owes HALF TRILLION PESOS in outstanding debt despite the huge funds being poured into its coffers.

What did we, the taxpayers, get in return? Just this year, a virtual unknown company with a constantly-changing address was invited, bidded in, and won a whopping P320M contract to supply coal to the Pagbilao Coal plant. Checking with SEC, its records say that it was a "minimum" corporation - One Million Pesos of stocks authorized, P250,000 subscribed, and only P62,500 actually paid!. It doesn't end there, the contract was even raised to P956.4M! The corporation's listed bank is a "Peninsula Rural Bank" located in, what do you know, Cebu!

This three-month old company (at the time of invitation) is definitely a middleman with no previous record of coal trading. Ditto the individual records of the incorporators. Napocor now deals with middlemen when it can get tenders directly from coal producers on the cheap. What is Gloria's government doing about it? Nada. Dick Pascual has the sleazy details.

On the issue of passing systems losses to consumers, its study must be initiated by policy makers to balance between the greed of companies and the welfare of the consumers with government providing the incentives to sustain it. Simply directing a stoppage to its collection may prove to be harmful in the long run, 9.5% in terms of utility bottom lines is no meager amount!

Napocor and the IPPs produce power in KVA (Kilo Volt x Amperes), they sell it (technically, it’s called “demand”) in KVAh (KVA x hrs.) to distributors like Meralco.

Meralco in turn, sells it to us in KWh (Kilo Watt x hrs.) which is actual consumption. KVAh x Power Factor (which is always a decimal value) is reflected in our bills as KWh. It looks good initially, doesn’t it? We’re paying the LOWER amount of “consumed power”.

But here’s the catch. The “sytems losses” which is comprised of energy distributed but not billed is summed up and distributed to all PAYING customers only. Systems losses include losses from equipment (i.e., distribution transformers’ core losses, copper conductor losses, low-Power Factor loads, etc.) and THOSE LOST THROUGH PILFERAGE. What one jumper has “cheated” out of the utility company, the others are paying for. No economic loss for the distributor.

Multiply that practice with those who tap into the power lines which is very rampant in many squatter colonies.

We, the fair buyers, are actually paying more to cover the amount lost to power theft, and for subsidizing those consuming less than 100KWh a month, which you can achieve by dividing your loads and applying for a meter to each freezer, aircon, or whathaveyou in order to fall within a certain bracket of higher subsidy.

The systems loss charges, steady at about 8-9% of the total bill per month, frees Meralco from the responsibility to run after power thieves, while on the other hand, it punishes those who are lawfully-abiding consumers. It only perpetuates - no, encourages - stealing and it does not pressure both distributor and consumer into using machinery and other loads which are more power efficient since someone else is paying for another person’s indifference.

What is worse is that this "loss", which by the very definition of the word, does not qualify for any "value added", is even subjected to the Expanded Value-Added Tax!

Incidentally, the lower end cutoff for Power Factor, at 0.75 does not help much either. Meralco's industrial clients are levied a monthly penalty if their power factor is below 0.75 and gets rebates over 0.85. Why not raise this range to 0.80 to 0.90 which many manufacturing plants and commercial establishments can easily achieve by installing power factor correction capacitors? This practice is now widespread with some suppliers even collecting payments based on power factor savings: the rebate pays for the equipment! Properly promoted, this will definitely trim a large chunk off the systems loss charge. Same for power quality, many large companies with several computers, variable speed/frequency drives and other non-linear loads generate harmonic "noise" on the system which may sometimes be destructive to our sensitive equipment and appliances. It's about time we upgraded and followed the Electrical Code, Fire Code, and Building Code.

Look, as I was searching the AEV website for VECO, to see how much VECO charges for system losses. (I know this from a website I visited to be about 8.14% which is actually higher than Meralco's most recent billing - about 7.8%) instead, I stumbled upon this page wherein the last line says, "VECO is owned and managed by the Aboitiz and Garcia families of Cebu."

So there it is, another conflict-of-interest issue involving the blabbermouth GSIS President seeking to take a peek into the trade secrets of his competitor, aside from the issue where Garcia says the insurers of Meralco are overcharging thus, he wants the records of the transactions. Again, as competitor (he heads GSIS which is into insurance), there is wisdom in Meralco's seeming to be lacking in transparency. I would have done the same if my co-owner who has conflicting interests with another company, he is entitled to see the stockholder reports BUT NOT documents related to specific operations. Wtf? Gloria and her stooges lecturing us on transparency?

Garcia's moves are politically motivated, even the businessmen know it. It is stupid enough that his scare tactics has pulled down the price of Meralco A&B in PSE. These pronouncements alone should merit at the very least some kind of disciplinary action from the GSIS Board of Trustees, since he is putting at great risk a huge amount of social security money that has no previous problem making profits in that investment. In the first place, a person like Garcia has no business running a state pension and security fund on the basis alone of his and his family's and partners' businesses. Well, didn't he move the GSIS account from the stable, more convenient Metrobank Landbank to favor his kababayan and VECO co-owners Aboitiz and move it to the Aboitiz-owned Union Bank? Never mind that gov't employees in the provinces had to skip work to get their checks or withdraw from the next poblacion in the next island because Union Bank has less ATMs and branches than Metrobank Landbank!

As GSIS' main fund manager, he should have been more discreet, avoiding means fair and foul to settle a score with Meralco's Board for keeping some documents from him. But if he wants to pursue the takeover of Meralco he obviously has made it much easier. Meralco is selling at a much cheaper price these days. GSIS' 22% stake coupled with those of Landbank, Pag-Ibig Fund, and Philhealth make up 33% ownership in Meralco, a tad shy of the Lopezes' 33.4% interest.

All these are playing into the hands of Garcia, who needs a popular issue to hitch his campaign wagon, anointing himself the Pinoy savior, thus he deserves to become their Senator. At the same time, his partners can totally monopolize the energy industry with the Lopezes out of their paths. They can now easily sell the remaining Napocor assets since there will be no dificulty in securing purchase contracts with the only remaining POWERFUL power company, Aboitiz Equity Ventures. No more future Masinlocs, Transcos, Mitras, and Meralcos.

With the generation, transmission, and now distribution (soon, maybe fuel, too!) under the exclusive control of the same greedy groups and Mafia families, this whole friggin cursed nation of syndicates and ninety million cowards should cease to exist.

Labels: Crisis, Energy, EPIRA, ERC, generation charge, Gloria, GMA's speech, GSIS, Images, Malacañang, Meralco Takeover, Napocor, privatization, PSALM, systems loss, Transco, WESM, Winston Garcia

posted by Tongue's Wrath @ 5/11/2008 03:13:00 PM