Boardroom battles are common and the current fight over management control of the Manila Electric Co. (Meralco) is nothing unusual. Ignore for a moment that the Government Service Insurance System (GSIS) is a quasigovernment corporation and the potential politics involved. It is, at its simplest, an effort by two groups that own and directly control about the same percentage of share ownership to try to run the company.

Meralco is a publicly owned and listed company, meaning that anyone can share in the potential price appreciation of its shares and can receive a portion of company profits when dividends are declared.

This company is a public utility, which means  it has a monopoly in the delivery of service to the public. In return for the benefits of not having any competition, the government regulates how much profit the company can make. Normally, the regulated price that it sells its services to the public depends on the rate of return or profit the company will make and that is controlled by the government.

In theory, without government regulation, Meralco could charge whatever price it wanted and the public would have no choice but to pay or not have electric service. But Meralco prices are under government control. Therefore, the government has an obligation to keep the price charged as low as possible to serve the best public interests while, at the same time, allow enough return to keep the company financially sound, able to expand and enhance company business interests and allow the shareholders to make money on their investment.

A public utility must serve both the public interest and the interest of its investors. However, because of the government control of pricing, it is the absolute obligation of government regulators to protect and serve the public interest. Then, after the regulations are set, it is management’s responsibility to protect shareholder interests within the boundaries that the regulators establish.

It is not the job of the Meralco management to protect the public. That is the government’s job. It is not the job of government to protect the Meralco shareholders. That is the management’s job.

If I am a shareholder of Meralco, I want the company to charge P50 per kilowatt-hour so my company can make a lot of profit. As a consumer, I want the government to keep electricity prices as low as possible while insuring reliable service. Any reasonable person can see that there can be an inherent conflict of interest in those two positions. That is why public utilities function best when privately owned and operated and regulated by the government.

The idea of “public interest” is a little confusing also. “Public interest” is only an issue not because of the product that Meralco delivers, but because it is a monopoly. Clean and pure drinking water is just as much a matter of public interest as electricity. Yet there is no discussion about the pricing of bottled water because there are hundreds of suppliers. Because it is a free market, prices range in my area from P30 to P50 per bottle.

If you are a Meralco shareholder, you have no obligation to concern yourself with the public interest. Again, that is the government regulator’s job. You need to protect your Meralco investment by making sure your company’s management is doing the best job possible for the company.

The issues raised by the GSIS are important to you as a company owner since both sides are asking for your support. This is almost like a political campaign in the sense that there is an incumbent management with a track record you can look at and a challenger that has some specific proposals for your corporation.

A very sensitive issue is the purchase of power by Meralco from the Lopez group electricity generator First Gen Corp. The controlling management of Meralco also controls First Gen. No question that this arrangement makes for bad public relations for a public utility. Unquestionably, as a public company, this arrangement would raise a few eyebrows and would deserve shareholder scrutiny. According to the 2007 Meralco Annual Report, First Gen sells electricity, including transmission costs, to Meralco at a lower rate (P4.91 v. P6.25) than the National Power Corp. (Napocor). Yet GSIS wants Meralco to buy a majority of its electricity from Napocor, reducing purchases from the independent producers. Either I am missing something or a further explanation is needed.

The expenses of Meralco are too high, we are told, because of an excess of employees. Fair enough. Last year, Meralco posted a P3.6-billion profit. Shareholders should be told how much savings could accrue through new management initiatives and what effect their efforts would have on the bottom line. Meralco paid a P1 cash dividend and a 10-percent stock dividend in 2007. What effect will a new management team have on those numbers?

For shareholders, the issue is clear; and the issue is not GSIS versus Lopez. It is only about having the best possible team run a profitable publicly owned company, which just happens to hold a government-regulated monopoly. However, if Meralco is now going to be operated principally in the “public interest” and not for “shareholder interest,” sell your stock as quickly as possible at any price. If any potential new management can run Meralco more effectively, efficiently and profitably, buy more shares. 

E-mail comments to mangun@email.com.

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Boardroom battles are common and the current fight over management control of the Manila Electric Co. (Meralco) is nothing unusual.

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