Meralco issues

Hogging prime media space is the battle royale between top Government Service Insurance System (GSIS) honcho Winston Garcia and the Lopezes of the utility giant Manila Electric Co. (Meralco) and which are now being viewed with mixed feelings by stock- market aficionados, housewives, market investors, pension funds and electricity consumers.

There have been side issues as well that have been engendered by the ongoing media war, ranging from the National Power Corp. (Napocor) subsidy that President Arroyo has announced to the system losses.

With Garcia’s call for full transparency in Meralco’s business affairs arising from its huge investment in Meralco, the GSIS president has sought access to Meralco’s documents, including the contracts it entered into and how it bills its customers. Apparently unappeased even on the issue of returns on their investments, can anyone blame Garcia for seeing red these days over what he colorfully described as Meralco’s treatment of its investors and customers as “dirt rags”?

“The fight for full transparency and good corporate governance in Meralco,” according to Garcia, is to stop GSIS members from receiving a double black eye—the mismanagement of their investments in Meralco and being made to pay questionably high electricity as Meralco customers. He stressed that the GSIS is ready to hale Meralco to court if only to set light on and correct what he claimed to be several questionable practices, such as the 58 centavos per kilowatt-hour collected by Meralco from its customers as “system-loss charge” to cover claimed pilferage and heat losses.

This system-loss charge is unfair to all Meralco customers, as they are made to pay for electricity allegedly stolen by other people. They are also tasked to pay for electricity lost due to the incompetence and inefficiency of Meralco in distributing power. The prevailing public perception is that Meralco is neither cracking down on pilferage nor plugging distribution leakages so it can justify continuously charging its customers with this abominable system-loss charge, the GSIS president said.

The latest fusillade to come from Garcia concerns dividends that Meralco pays out, which were made once over a five-year period until 2007. As a pension fund, the GSIS has to see to it that it gets the best returns. This was, however, disputed by Meralco, citing the inability of the utility firm to get its rate adjustments. Here the blame is put squarely on overregulation of the industry.

How the ongoing media spectacle shapes out continues to mystify. But what is good about the whole affair is that it highlights various side issues borne by the controversy. One, as we pointed out in our earlier column, is the question of the huge royalty tax that the government imposes on the natural gas that flows out of the Malampaya natural-gas reservoir. Another is the higher price that Napocor pays for the coal that it sources from its suppliers. Here, there is no long-term supply agreement that Napocor eked out, putting the firm at risk on the volatile energy prices.

Another alarming thing was President Arroyo’s pronouncement that she would lower Napocor’s rates again by half. Was the President ill-advised on this politically motivated pricing decision for the power sector? Remember the last time, on May 1, 2002, when she instructed Napocor to lower rates by 80 centavos and capped the power- purchase agreement at a fixed rate of 40 centavos. By capping its rates, the Napocor selling price ceased to reflect any movements in its cost of fuel and cost of power purchased from its independent power producers.

With world fuel prices surging in the ensuing years, Napocor’s selling prices soon no longer reflected their true costs. The years 2002, 2003 and 2004 witnessed the largest losses in Napocor’s history, hitting a peak of a P110-billion net loss in a single year (2003). That year, the loss of Napocor accounted for more than a third of the entire Consolidated Public Sector Deficit. In turn, however, these losses were funded by increasingly higher levels of government guaranteed debt.

Napocor’s total liabilities in 2003 reached a whopping P1.2 trillion. That figure was more than nine times the yearly national education budget and 75 times the annual national health budget. And we must also not forget that among the most pressing reasons government passed the E-VAT law was that it needed to raise funds drastically to cover its massive debts—more than 60 percent of which was Napocor’s, primarily due to government subsidized energy rates and plain management ineptitude.

The irony is that subsidizing the power sector through low Napocor rates results in a massive subsidy to the rich at the expense of the poor. The rich, it must be remembered, can afford to go on their wasteful ways. But the poor cannot. Why is this so? Because FIES (Family Income and Expenditure Survey) data shows that 92 percent of the residential kilowatt-hours consumed in the country go to rich Class A and B families. Only 8 percent of those kilowatt-hours are consumed by poor Class C, D and E households. That is one side issue that should be considered in the ongoing Meralco media war. 

E-mail: hugagni@yahoo.com

ON the front page of this issue, a BusinessMirror editor on a trip to Pakistan recounts her experience in buying over-the-counter drugs to check out the reputed big difference between those and their equivalent in the Philippines, which has the dubious distinction of having the priciest medicines in the world.

The Lopezes should have been an easy mark for a corrupt administration that is trying to look like it cares for the welfare of the masses. Unfortunately, the administration went into overkill.

Hogging prime media space is the battle royale between top Government Service Insurance System (GSIS) honcho Winston Garcia and the Lopezes of the utility giant Manila Electric Co. (Meralco) and which are now being viewed with mixed feelings by stock- market aficionados, housewives, market investors, pension funds and electricity consumers.

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