Ganging up on Meralco; search for an energy point man
Thursday, January 05, 2006
Certain government policy makers were not in their right mind when they suggested converting debts owed by Manila Electric Co. (Meralco) to state-run National Power Corp. (Napocor) into equity. Meralco is far from the pink of health and owning a part of it or a takeover is financial suicide on the part of the administration of President Gloria Macapagal Arroyo.
The electric utility owned by the Lopez family is in a financial bind at the moment, with much of its troubles caused by government intervention with regard to the deferral of power rate hikes in the past. Napocor suffers from the same predicament – it was unable to raise power rates in the past to give way to popular decisions. Both power companies as a result saw their revenue base sharply reduced.
Meralco, assuming it is for sale, will not attract private investors unless the government clears up the rules on the power industry and consistently applies them. Even Meralco’s owners – the Lopez family and Union Fenosa of Spain – have at one point in time thought of quitting the company “out of exasperation.” I earlier wrote a column (Sept.23, 2004 issue) about the Lopez family wanting to call it quits. I am reprinting a portion of that column below because of the item’s relevance today:
“The Lopez family must have had it after decades of managing Manila Electric Co. (Meralco). Manuel ‘Manolo’ Lopez, Meralco chairman and CEO, has told some close associates that the family is thinking of selling out amid the heavy financial burden being shouldered by the utility firm.
“A board director confirmed that Manolo, ‘out of exasperation,’ told some members of the board that his family was ready to dispose of their holdings in Meralco. Whether the statement was an off-the-cuff remark or not, the board director was not sure. But he said there were no indications at the moment that the Lopezes were in serious talks with any party for the sale of their shares.
Off to Spain
“Manolo’s statement, however, could not be taken lightly. The grapevine said he has just gone to Spain, along with Joe Guingona, a close friend and Manolo’s former executive assistant in Meralco, to confer with executives of Union Fenosa. Our source speculated that Manolo and Joe must have apprised Union Fenosa SA, which partly owns Meralco, of the company’s situation and the plans of the Lopez family with regard to its shareholdings in the utility.
“Union Fenosa itself, the source added, was not happy with the way things are shaping up. Its $200 million investment in Meralco is now worth a mere $20 million or so.
“Two Supreme Court decisions — one ordering a P28 billion refund for allegedly overbilling customers and the second stopping a rate adjustment — have virtually brought Meralco to its knees. With sharply reduced revenues, Meralco’s finances have deteriorated, suffering profit declines in the last five years. Worse, the company finds it difficult to borrow funds from abroad because its return on rate base (a measure of profitability) is way below the level preferred by creditors.”
That column, of course, predictably drew a denial from Manolo himself the following day. “I would like to dispel all speculation that I am wavering on my commitment to serve Meralco. In fact, I would like to assure our stakeholders and customers that I remain committed in serving them to the best of my ability. A covenant that I have embraced since taking on the helm of this company,” Manolo said in a statement.
He said while the company was disappointed with the latest court rulings against it that have affected its financial situation, “these events are not enough to make Meralco deviate from its mission of providing its customers efficient, adequate and reliable electric service at reasonable cost.”
He also clarified that his recent trip to Spain (in 2004) was merely to apprise Meralco’s foreign partner, Union Fenosa, on the company’s overall situation. “Just like any other company, Meralco does this on a regular basis,” Lopez said.
Union Fenosa also disappointed
Over a year after that column was published, it was Spain’s Union Fenosa turn to express its frustrations with its Meralco investments as confirmed by Manolo (Dec. 22, 2005 issue). “They (Union Fenosa) are holding on (to their investments in Meralco) but they have lots of disappointments in making the $200 million investment six years ago,” Manolo told reporters in a briefing. He said Union Fenosa officials in his last visit to Spain in October 2005 were “getting restless” in their investments in Meralco and wanted to “sell out.” Manolo said he was able to convince the Spanish firm to hold on to their investments after assuring that “things will get better.”
Controversial EO 474
President Arroyo, in an attempt to lift her sagging popularity, had thought of creating an energy superbody through Executive Order 474. EO 474 sought to create the Philippine Strategic Oil, Gas, Energy Resources and Power Infrastructure Office, whose main task was to aggressively promote, develop and fast-track crucial private sector-led oil, gas, coal and other energy resources and power projects.
President Arroyo had hoped EO would eventually result to lower electricity prices and bring down the cost of automotive fuel by bringing in heavy investments in the energy sector. The chief executive, according to the grapevine, was piqued at the helplessness of the Department of Energy in moderating oil price increases.
What President Arroyo needs, perhaps, is a point man with the rank of a presidential adviser who could assure the implementation of a long-term solution to high power rates and prohibitive gasoline prices. The Philippines can sharply reduce the dependence of the automotive sector on imported fuel through a long-term plan. Ethanol, bio-diesel and compressed natural gas are the motor fuels of the future. Mrs. Arroyo’s energy point man should see to it that the energy substitute program is immediately carried out within a realistic time frame.
Power rates, meanwhile, must go down in the immediate future to improve President Arroyo’s rating. The current power mix is already dominated by nonoil products such as geothermal, coal, hydro and natural gas. There is no logical reason why power rates should remain prohibitive in a country that has successfully reduced its reliance on imported oil.
E-mail: mailto:rayenano@yahoo.comor business@manilastandardtoday.com
posted by philpower @ 12:07 PM,
