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Philippine Power Plant

Napocor’s credibility gap
Tuesday, January 03, 2006

By Dan Mariano

A “LEAKED” secret memo, which claimed Manila Electric Co. owed National Power Corp. P42 billion, pictured Meralco as stubborn and unreasonable. It portrayed the country’s biggest private distributor of electricity as opposed to achieving a suitable settlement with the state-owned Napocor.

As far as Meralco is concerned, however, it has fully supported a settlement agreement it reached with Napocor in July 2003. To bear this out, it refers to records of the Energy Regulatory Commission (ERC).

Records show that as early as September 2001 Meralco officials wrote their Napocor counterparts seeking to start talks for a transition supply contract (TSC). In early 2002 Napocor responded to Meralco’s offer of negotiations by slapping it with ruinous billing adjustments, which Meralco refused to pay. Meralco pointed out that the adjustments would amount to an “unconscionable burden” on its customers.

In a bid to settle the dispute, Meralco entered into mediations, which resulted in the 2003 settlement. The agreement was signed by then-Napocor president Roger Murga. One of the witnesses was Ed del Fonso, then-president of the Power Sector Assets and Liabilities Management Corp. (Psalm).

The appointed mediators—Ambassador Sedfrey Ordoñez for Napocor and former World Energy Council president Antonio del Rosario for Meralco—attested that the settlement and the agreements therein “are the results of the painstaking efforts exerted by the parties to resolve the issues and differences between them through reasonable, fair and just solution that places above all considerations the highest concern for the welfare of the consumers.”

In Meralco’s view, the settlement “is a commitment of [Napocor], and that the present [Napocor] leadership should support it.” However, the current top honchos of the state power firm do not seem as committed to the settlement as their predecessors. Their refusal to honor the 2003 agreement once more shows that businesses, big or small, in the Philippines are at the mercy of inconsistent government policy and fickle-minded bureaucrats.

Going by Napocor’s actuations, Meralco officials are convinced that their opposite numbers in the state-owned firm have only one thing in mind—the takeover of the country’s biggest private distributor of electricity. This objective violates the spirit of the Electric Power Industry Reform Act (Epira), which envisions Napocor’s privatization, not the expansion of dominance over the industry.

The leaked secret memo—which seeks to convert Meralco’s minimum charges into equity—reveals as much when it says, “with a significant number of shares, [Napocor] will have more leverage restructuring of the power industry per Epira, such as the immediate implementation of open access and retail competition.”

Meralco officials point out that Epira contains no provisions for immediate open access and retail competition. What the law provides for is that retail competition can only start after five conditions prescribed in Epira itself are met.

The secret memo also seeks to prescribe how Meralco should source its electricity—i.e., “manner of dispatch”—from its independent power producers (IPPs). Again, the memo’s prescription, Meralco officials say, is “clearly not consistent with the Epira provision on the determination of volume for the TSC.”

What the memo indicates is that Napocor wants to subvert ERC’s authority. It is the ERC that will determine the dispatch that will result in the least cost to the consumers. According to Meralco, the ERC has done so “and [Napocor] has to comply.”

Investors, whether domestic or foreign, view stability of government policy and evenhandedness of the regulatory environment as key indicators for the success of any privatization effort. The change in Napocor’s posture with respect to the dispute over its 10-year contract for sale of electricity (CSE) with Meralco will set back the privatization process.
Who would invest in a power industry dominated by a state agency whose attitude towards the private sector can so easily change from mediation to intimidation?

Even a suggestion to open Epira to amendments could send the wrong signals—and further delay Napocor’s privatization. The protracted process of legislative review will just result in a lengthy period of uncertainty. For one, foreign investors will take a wait-and-see attitude and in all likelihood lose interest in the country altogether.

The worst signal will come if the government—as the secret memo proposes—takes over Meralco completely. As other commentators have already asked: What is to prevent government from taking over other businesses? Why would investors invest in such an environment?

The truth is that the government already holds a substantial portion of Meralco shares. Management decisions are cleared with a board composed of government representatives and independent directors.
What the secret memo would produce is a weird situation where a state-owned corporation (Napocor) sabotaging state interest (government shares) in a private company. Any announcement of a government takeover will send Meralco share prices plummeting in the stock market. If that happens, the government-owned shares will also lose value. So who will really get hurt?

The real irony is that Napocor, a government entity notorious for corruption and inefficiency, would deem to take on the role of champion of Meralco customers—even as it insists on its commitment to its own privatization. Talk about credibility gap.

By the way, why hasn’t anyone come forward to claim ownership of the memo? Too embarrassed by its blatant misrepresentation?

posted by philpower @ 10:24 AM,




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