Meralco: We don't owe gov't P42-B
Monday, December 19, 2005
By Inquirer
MANILA ELECTRIC CO. is contesting the claim of a top Malacañang official that it owes state-owned National Power Corp. P42 billion, which he wants converted into equity in Meralco to bring down electricity costs.
"Meralco has not recognized any liability arising from the 10-year contract for the sale of electricity (CSE)," Elpi O. Cuna Jr., a vice president of Meralco, said yesterday in a statement.
Cuna was reacting to yesterday's banner story in the Inquirer, which said Napocor could use the P42-billion debt as leverage to take over the distribution company and reduce electricity rates.
The takeover of Meralco, a publicly listed company, was one of the options the Malacañang official had presented to President Gloria Macapagal-Arroyo in a July memorandum to settle the dispute between Napocor and Meralco.
Meralco's franchise area covers Metro Manila, the provinces of Bulacan, Rizal and Cavite, and parts of Laguna, Quezon, Batangas and Pampanga.
Another option proposed by the memorandum was for the government to bind Meralco to a deal requiring it to pay the debt by asking the company to issue promissory notes.
Napocor claims that the debt represents the amount of power Meralco had committed to buy from it since 2001 under the terms of a supply contract signed in November 1994.
However, Meralco's purchases from Napocor had been declining over the years, resulting in higher electricity rates for consumers and more debt for Napocor. The power distribution company had been getting its supply from independent power producers (IPPs) Quezon Power Philippines and First Gas Holdings Corp.
Energy crisis
Cuna, also Meralco director for corporate communication, told the Inquirer that Meralco started turning to its IPPs upon the prodding of the government itself during the term of President Fidel V. Ramos.
He said Ricardo Viray, energy secretary under Ramos, wrote a letter allowing Meralco to tap its IPPs for additional power at the height of the energy crisis then. "It was them (the government) who encouraged us to tap IPPs," Cuna said.
Congress gave Ramos emergency powers in the early 1990s that allowed the government to enter into negotiated contracts with IPPs.
No liability
The memorandum to Ms Arroyo claims that Meralco has acknowledged an obligation of at least P15 billion to Napocor, but Cuna, in his statement, said: "It is a matter of record that no liability arising from the CSE is recognized in Meralco's books."
While the notes to Meralco's financial statements mention the dispute arising from the CSE, which resulted in the July 2003 settlement agreement, they state:
"In the event ERC (Energy Regulatory Commission) disapproves the settlement agreement, both parties shall revert to their respective positions before the mediation. If this happens, the remedy available to both parties, pursuant to the 10-year contract, is arbitration," Cuna said.
The options proposed by the memorandum -- issuance of promissory notes and conversion of debt into equity -- do not hold water because there is no recognized liability, according to the Meralco official.
Cuna said the memorandum made the false claim that the second option would not result in additional costs to Meralco consumers.
"In fact, by stating that minimum charges should be higher at P42 billion, it is insisting on an amount recoverable from customers that is almost three times what is provided for under the terms of the settlement agreement of around P14.3 billion," he said.
Pain
Cuna said it was also not true that the debt to equity proposal would neither inflict pain on ordinary stockholders nor change any of the stockholder's rights and benefits accruing to the shares.
"The Meralco price share is an indication of the pain that ordinary shareholders have suffered as a result of the regulatory and judicial setbacks of Meralco. A government takeover is the button that will certainly set the share price plummeting downward," Cuna said.
Cuna said a further drop in share prices and the resulting dilution of the equity of other shareholders would cause foreign investors (a substantial block is owned by a Spanish utility) to leave the country.
The memorandum said the proposal to convert debt to equity "also opens the option of Napocor selling such Meralco shares to the public. Or Napocor may be the conduit for Meralco customers to be owners of a public utility."
"It is a puzzle how they envision to do this," Cuna said. "Meralco is a listed company and its shares are traded over the Philippine Stock Exchange. Its shares are available for purchase by any Meralco customer, or anybody for that matter," he said.
Palace view
Malacañang yesterday assured the public that any decision by the President on Meralco's debt would be within the law and "for the best interest of the people."
Press Secretary Ignacio Bunye acknowledged that Cabinet officials were reviewing the different proposals on how to settle the obligations of Meralco.
"But we are not dishing out speculations until a final decision is made that would be lawful, just and for the best interest of the people," Bunye said in his weekly "View from the Palace" column.
Dangerous
Cuna said any government takeover of Meralco would send a dangerous signal to the business community.
"What is to prevent [the] government from taking over another business? Why would investors invest in such an environment? [The] government holds a substantial portion of Meralco shares.
Management decisions are cleared with a board, which includes government representatives and independent directors. Is this a case of a government firm sabotaging government interest? Surely, [the] government will be hurt with a further fall in Meralco prices," Cuna said.
He said it was ironic that a government entity pictured as corrupt and inefficient would like to take on the role as the champion of the Meralco customer. "Is there a credibility gap somewhere?" he asked.
The memorandum states that "Meralco has an outstanding debt of P42 billion with Napocor based on minimum charges due for unconsumed energy levels for the period of Dec. 25, 2001 to Dec. 31, 2004."
Cuna noted that minimum charges, being in the nature of fixed costs, were recoverable from customers.
The memo puts the minimum charges at a bloated P42 billion, indicating the inclusion of the cost of fuel and other variable costs not actually incurred but also interest charges, he said.
"During the mediation proceedings that led to the settlement agreement, Napocor agreed to limit its minimum charges that will be recoverable from customers to only its fixed cost of P1.51 per kwh. A recovery at P36 billion or P42 billion will mean a gain for Napocor at the expense of Meralco customers," Cuna said.
posted by philpower @ 6:45 AM,
