End foreign-controlled Meralco’s 15-year monopoly
“RAILROADING” has become an ugly term referring to the irregular legislative process in which bills are rushed into approval.
In an open and free society, it has become unacceptable for a major reason — it deprives the people, or at least those who will be impacted, of the chance to have their voices heard.
In some cases, it means legislation stamped as priority or urgent by the ruling administration which means passage of bills is a matter of national urgency or, in some cases, of national security.
But to railroad a franchise renewal? It sounds suspicious, at the very least.
That appears to be what’s happening with the campaign to renew the Manila Electric Co. (Meralco) franchise way ahead of its expiry in 2028 yet.
Franchise
As to why, we can only speculate at this point but several consumer and energy watchdog groups have offered their theories — the quicker the process is finished, the less time to put the giant utility and its franchise under the microscope.
Indeed, if the process is allowed to take its natural course, it would take months, even years, for the giant utility to clear the air on a long list of questions that, contrary to the pep talk of a small legislative cheering squad driving the Meralco franchise train, hasn’t been fully answered.
One, ownership. Records about who or what company really owned Meralco should be raised during deliberations on its franchise renewal.
According to a recent column by my colleague here Al Vitangcol III, an adviser to President Ferdinand “Bongbong” Marcos Jr. had written to Speaker Martin Romualdez raising the murky ownership information about the giant utility.
The letter, most likely sent to the Speaker as an FYI, said that during the time of the current president’s father, the late president Ferdinand Marcos Sr., it was reported that the Government Service Insurance System (GSIS) was made to purchase Meralco shares from the Lopez clan.
Subscribers
Marcos Sr. allotted ownership of Meralco to subscribers who had been getting dividends.
But when the late President Corazon Aquino took over in 1986, the utility was returned to the Lopez clan allegedly at no cost, according to Vitangcol.
Under former president Gloria Macapagal Arroyo, the GSIS tried to regain control of Meralco, which led to a legal battle at the Securities and Exchange Commission.
But while the case was pending, the Lopez clan sold its equity to Metro Pacific Investments Corp. (MPIC) headed by Manuel Pangilinan who, however, is merely the executive of Indonesian tycoon Anthoni Salim, the 49 percent owner of MPIC, mother firm of Hong Kong-based First Pacific Co.
In the FYI letter to Romualdez, the presidential adviser said the ownership question should be scrutinized and the chance to do it was during deliberations on the Meralco franchise renewal.
Salim
My own investigation, made way back in 2016*, is that the Hong Kong-based First Pacific Co., owned by the Indonesian Salim, though corporate layers owns 46 percent of Meralco, a layer of ownership that had not changed since 2012. (Pangilinan owns only 1.7 percent). It is a blatant violation of the 40 percent limit on foreign ownership of public utilities. It has been able to do this through a legal fiction called “voting preferred” shares, which I will explain in future columns.
First Pacific Co. itself has not hidden this fact and has consistently boasted in its annual reports that Meralco has been one of its top money-making firms.
Every year since 2009, in fact, it publishes its corporate structure which shows Meralco as one of its profitable firms. See the image taken from First Pacific’s annual report for 2023.
Two, rate-setting. Power rates have taken an upward trend ever since Meralco set its weighted average capital cost (WACC) at 14.97 percent. Meralco will adjust rates downward a few times but the overall trend, if shown in a graph, is rising.
WACC, or in layman’s terms, the profit margin, plays a pivotal role in determining our power bills. Simply put, Meralco cannot be expected to follow a rate-setting regimen that will not match, or even exceed, its WACC. Almost 15 percent.
Since Meralco is allowed to earn that much, it does so. The problem is the WACC that it has been using since a decade ago is no longer accurate. Some experts estimate that it should now be just a little over 8 percent at present, or nearly half.
So, you hear Meralco announcing earnings of more than P20 billion in the four quarters of 2023 and more than P10 billion nearing the first half of 2024.
That’s WACC at work for them and against us, consumers.
Hearings
Questions have been raised at the franchise committee hearings why Meralco hasn’t adjusted its WACC and the convenient answer is to point a finger at the regulators, the Energy Regulatory Commission (ERC) to be exact.
This is where serious suspicions arise. The ERC is evasive in providing answers why a nearly 15-percent profit margin is OK. It simply continues to repeat the hollow pronouncement that it’s keeping watch over the utility giant.
That’s not all. WACC is supposed to represent assets being used by Meralco in its operations, which is solely to distribute electricity. But documents showed that, to compute the totality of its assets that determine WACC, Meralco included a theater, shooting range, wellness center and a museum that do not have anything at all to do with power distribution.
Three, there’s no compliance with clerical but mandatory provisions of the law that granted Meralco its franchise. Foremost is the requirement to report any and all changes in ownership of the franchise holder.
Lopez
Since its well-publicized sale from the Lopez clan 15 years ago to the Indonesian-controlled First Pacific Co.’s subsidiaries, Meralco has not changed this drastic change in ownership, especially the fact that a Filipino-owned utility firm had been turned over to a foreign conglomerate.
But the ownership character didn’t change, Meralco officials amazingly claimed.
Taking a closer look, the reporting requirement for ownership change is enough to cause Meralco to lose its franchise, especially as it meant at least $2 billion, from my calculation, in profits remitted to the Hong Kong-based First Pacific from 2009 to 2023, an amount that meant a decapitalization of the economy.
Four, again, reporting duties. The Meralco franchise has been clearly defined in the law that granted it. But Meralco now operates outside the National Capital Region which was not officially reported to Congress, a requirement of the law.
It’s the second reporting mandate that has been unfulfilled. The question again is, must Meralco be penalized for the glaring violation? There is no record at all of any penalty, so the next question emerges — is Meralco above the law, the one that granted its franchise, to be precise?
Conflict
Six, conflict of interest.
The Electric Power Industry Reform Act paved the way for deregulation of the energy industry, opening it up for private sector dominance.
But to guard against monopolies, which are never good for businesses, the Epira also prohibited conflict of interest, meaning an electricity distributor like Meralco must not also produce the electricity that it’s distributing.
Past legislators, though, watered down that prohibition to introduce loopholes through such terms as “cross-ownership” and “associated firms.”
But cross-ownership simply means generating companies in which distributing utilities, in this case Meralco, have shares in. Associated firms, on the other hand, are generating companies that have umbilical cords attached to Meralco. In this case, companies owned by Meralco’s parent company, Metro Pacific.
Records will bare billions of pesos worth of power supply contracts given to cross-owned and associated companies in the so-called competitive selection process through which Meralco gets its electricity supply. The reality is that through thick corporate layers, an Indonesian, Anthoni Salim, has complete control of a public utility firm which is prohibited by the Constitution itself.
Epira
This situation must prompt those running the Meralco franchise train in the House to pause and see the wisdom of first amending the Epira before the rush to renew the Meralco franchise.
As a matter of prudence, the railroading of Meralco’s franchise must slow down, even stop, to give way to answers which are not only crucial, but life-changing for tens of millions of electricity consumers.
If President Marcos Jr. is serious in his new “Panahon ng Pagbabago” theme, the dismantling of the foreign-controlled Meralco’s 15-year monopoly should be accomplished under his regime. His father had planned to democratize its ownership back in the 1970s to electricity consumers, after he had booted out the Lopez oligarchic clan’s hold on it in the 1960s. It is his son’s turn to boot out a more powerful, Indonesian oligarch out of that giant firm, which has even trampled on our Constitution.
*This is reported in my book, “Colossal Deception: How Foreigners Control our Telecoms Sector,” available at amazon.com or rigobertotiglao.com/shop
Facebook: Rigoberto Tiglao
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Website: www.rigobertotiglao.com
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End foreign-controlled Meralco’s 15-year monopoly
Source: Breaking News PH
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