Gov't to Meralco: Pay up
Monday, December 19, 2005
By Tony S. BergoniaInquirer
ENERGY consumers will be looking at a considerable reduction in electricity rates if the Arroyo administration opts to convert a P42-billion outstanding debt of the Manila Electric Co. into shares of stock, resulting in government virtually taking control of the Lopez Group-led distribution utility.
This was one of the options presented in a July 2005 memorandum to President Macapagal-Arroyo by a top Malacañang official to settle a long-standing dispute between the National Power Corp. and Meralco over P42 billion worth of power that Meralco contracted to buy from the state-owned power generator.The takeover option would have the government simply converting the P42 billion into equity by entering into a debt conversion agreement with Meralco.
Sources in Malacañang said the President herself wants the P42 billion collected from Meralco.
They said Napocor has been given the go-signal by the President to collect the P42 billion and prevent the further financial hemorrhage of the state-owned power firm.
According to the memorandum, a copy of which was obtained by the Inquirer and which was marked privileged and confidential, the government could use the P42-billion debt as leverage to bring down electricity costs by using the debt to acquire more shares in Meralco.
Industry insiders said, however, that even if this course of action would mean lower electricity rates and put a stop to the financial hemorrhage of Napocor, the government's hands were tied as it would put the Arroyo administration on a collision course with the powerful and politically influential Lopez family and send a wrong signal to investors.
Elpi Cuna, the Meralco spokesperson, said the dispute over the P42-billion debt was a "rehash" of an old issue.
"The P42 billion is a ridiculous amount, it's not even funny," he said.
The P42 billion represents the amount of power that Meralco had committed to purchase from Napocor since 2001 under the terms of a supply contract signed in November 1994. In it, Meralco, as a distribution utility, undertook to buy 3,600 megawatts of electricity daily from Napocor, the country's main power generator.
More power from IPPs
However, Meralco's power purchases from Napocor had been steadily declining over the years, which had directly led to increased electricity rates for consumers and exacerbated the debt-laden Napocor's financial difficulties.
According to a report by the Freedom from Debt Coalition (FDC), a non-government organization advocating a reduction in the government budget for payment of onerous debts, Napocor sales to Meralco in the early part of 2002 had fallen by 18.6 percent.
It said this was because Meralco was purchasing more power from its affiliate independent power producers which it said were now supplying 65 percent of Meralco's energy requirements.
Meralco controls about 70 percent of the power supply in Metro Manila and about 60 percent nationwide.
The IPPs from which Meralco gets most of its electricity supply charge about P4.21 per kilowatt hour while Napocor charges P2.46 per kWh, or a difference of at least P1.75 per kWh.
By allowing Meralco to continue to buy from its IPPs-Quezon Power Phils. and First Gas Holdings Corp.-the government was tolerating the high cost of electricity charged by Meralco, FDC said.
Down to 35%
According to Palace sources, the President has been informed that Meralco continues to draw more electricity from its IPPs and that this has already reached 65 percent of the total amount of power that Meralco supplies to Metro Manila and neighboring provinces.
The amount of electricity that Napocor supplies to Meralco has been reduced to 35 percent, they said.
The FDC strongly opposed a settlement agreement signed on July 15, 2003, that would reduce Meralco's debt to Napocor from P42 billion to just P27 billion.
While the Energy Regulatory Commission, the state power regulator, is still studying the agreement, Malacañang sources said President Macapagal-Arroyo wants the entire P42 billion collected.
The negotiations to collect the debt have been complicated by a case filed with the Ombudsman last month by lawyer Gualberto de la Llana questioning the July 2003 agreement.
Documents obtained by the Inquirer showed that Meralco was trying to bring down the amount to P15 billion while parallel government efforts to collect the entire P42 billion are going on.
Refuting computation
During the negotiations on the July 2003 agreement, Meralco questioned the debt's computation and said it was willing to pay up to P15 billion.
Cuna said the dispute has undergone arbitration by the ERC and reiterated that Meralco refuted the computation.
One of the options proposed by the memorandum to the President was for the government to bind Meralco to a deal requiring it to pay the debt by asking the utility to issue promissory notes.
"This will not incur any additional cost to Meralco consumers" although it could directly affect Meralco's financial condition, according to the memorandum for Ms Arroyo.
Debt conversion
Under the debt conversion, Meralco would transfer an equivalent value of Meralco shares in favor of Napocor, the memo stated.
"Napocor will acquire P42 billion worth of Meralco stock that can either be preferred, common, voting or even non-voting," it said.
The government could either sell the Meralco shares in the market or take over the firm and thereby bring down electricity rates, the memo said.
"The issuance of these shares will not inflict any pain on ordinary stockholders who have invested in Meralco nor will it change any of the stockholders' rights and benefits accruing to the shares," the memorandum said.
It said "this action will not involve additional costs to Meralco's customers."
Though commonly referred to as a Lopez-owned company, Meralco has many owners, including the government and foreigners.
The government already controls 15.23 percent of Meralco, through shares listed under the Republic of the Philippines, the Social Security System, the Land Bank of the Philippines, the Home Development Mutual Fund and the Philippine Health Insurance Corp.
The Lopez family and Lopez-controlled companies account for 35.77 percent of Meralco's total common shares. The bulk of this, or 22.84 percent, is owned by First Philippine Union Fenosa Inc., a joint venture between the Spanish-based utility Union Fenosa and first Philippine Holdings (FPHC), a subsidiary of the Lopez-owned Benpres Holdings Corp. The rest is owned by the Meralco Pension Fund, FPHC and various Lopez family members.
As of September 2005, 39.55 percent of Meralco's common shares were held by PCD Nominee Corp., broken down into 25.93 percent in Filipino shares and 13.62 in non-Filipino shares.
Debt to equity
The memo said that by converting the debt to Meralco shares of stock the government would have better control of power supply and costs.
"With a significant number of shares, Napocor will have more leverage in the restructuring of the power industry" according to the terms of the Electric Power Industry Reform Act, it said.
The conversion of Meralco's debts to shares of stock would also compel Meralco to source more of its electricity from Napocor and therefore reduce the cost of electricity, it said.
It said that by reducing the amount of electricity being supplied by Meralco's IPPs and increasing that being supplied by Napocor, "there will be no need to have a fire sale of Napocor generation assets."
The memo said Napocor could also choose to directly sell electricity at "special rates to qualified bulk consumers."
posted by philpower @ 6:33 AM,
