Simplistic, uninformed analysis on NGCP

First of two parts

THE sole American columnist in this paper, Ben Kritz, wrote a column the other day responding to my piece that criticized the huge 40 percent ownership by the State Grid Corp. of China in the National Grid Corp. of the Philippines (NGCP), the country’s interconnected network of electricity lines across the entire archipelago, the backbone of our power infrastructure.

State Grid’s dominant role is obvious in that the two Filipino owners — Henry Sy Jr. of the Sy clan and insurance tycoon Robert Coyiuto — inarguably don’t know that the electricity grid systems require high levels of technology and expertise.

In his penchant for labeling arguments that debunk his silly ones, Kritz astoundingly says that my argument that a foreign corporation should not have a strategic 40 percent equity participation is “jingoistic,” a derogatory term meaning blind patriotism.

If we go by Kritz’s idea of “jingoism,” his country is the world’s most jingoistic country. While purportedly the champion of global capitalism, whose pillar is the free flow of goods and capital, the US actively limits foreign participation in its electric grid industry.

While there are notable exceptions (National Grid Plc by British companies and the Spanish Iberdrola), the US has imposed mechanisms and restrictions to address the two biggest arguments against foreigners participating in its electric grid operators: national security and critical infrastructure protection. This has limited foreign ownership of electric grid companies in the US, the world’s biggest market for such industries. The US government has several mechanisms and laws in place to limit foreign ownership or influence over its electric grid infrastructure:

– The interagency Committee on Foreign Investment in the United States reviews foreign investments in US companies to assess national security risks, especially in foreign investments in the electric grid. If a transaction is deemed risky, CFIUS can recommend blocking or requiring modifications to the deal.

– The US president has authority under the Defense Production Act to block foreign transactions that could threaten national security. For example, recent executive orders have restricted the use of foreign-made equipment in the grid, especially from those they have classified as “adversarial nations,” which includes China and Russia.

– The Federal Energy Regulatory Commission oversees the US energy sector and can evaluate foreign involvement to ensure compliance with grid reliability and security standards.

– State-level restrictions: Some states have additional laws limiting or scrutinizing foreign ownership of utilities and grid infrastructure.

We don’t have anything like these protective mechanisms, not even one. One day in 2008, a tycoon bought a substantial number of shares in the NGCP, costing tens of billions of pesos. The next day, as if he were selling a car, as the reports said, he flipped it and sold both to Filipino and Chinese investors at windfall profits. Few noticed the earth-shaking development in our economic system.

Kritz, in his column, hilariously struggles, based on data from, as he admits, the NGCP PR department, to show arithmetically (to an accuracy of two decimal points!) that Filipino ownership is actually 63.02 percent while foreign ownership is 36.98 percent in NGCP.

Malls

Didn’t it even cross his mind that while Sy is into malls and Coyiuto in insurance and luxury car distribution, it is only the Chinese company that knows what the grid business is, making the Filipino owners merely passive investors?

Kritz is clueless about how corporate power dynamics work. The Hong Kong-based First Pacific (controlled 45 percent by the Indonesian tycoon Anthoni Salim) owns only 46 percent of the Metro Pacific conglomerate and 25.6 percent of PLDT. Kritz would say Salim doesn’t control the conglomerate. Roughly the same situation is in the case of most conglomerates here: the Gokongweis own only 28 percent of the holding company; the Ayala family 48 percent. A greenhorn business reporter would know that a 30 percent control by one group of a company is often enough to control it since he can play off the other smaller investors against one another. This is particularly true in the NGCP, where the Sys and Coyiutos have never been business partners.

In NGCP’s case, while Filipino ownership totals 62 percent (according to Kritz’s data given by NGCP), the SM group and the luxury-car distributor Coyiuto have only 31.8 percent each (including that of their joint venture investing firm Synergy Grid and Development Philippine’s — smaller than the Chinese ownership of 37 percent going by Kritz/NGCP PR data).

I find it astounding — or maybe a testament again to the elite’s rule over the country – that NGCP was sold to the mega-rich SM group, to an insurance company, and to China’s biggest energy firm State Grid, with little discussion about it here, when State Grid has been a burning issue all over the world because of its aggressiveness in investing in power industry everywhere.

Monopoly

The fact is that in all Asian countries, and most other countries for that matter, for national security concerns as well as the desire to profit from their monopoly nature, grid systems are state-owned or owned by their nationals:

Japan: The grid is owned by totally Japanese firms Tokyo Electric Power Co., Kansai Electric Power Co. and Chubu Electric Power.

South Korea: Korea Electric Power Corp. is owned by the government but with some private shareholders.

India: The major operator is Power Grid Corp. of India (PGCIL), a government-owned company responsible for most of the transmission.

Indonesia: State-owned, mainly by Perusahaan Listrik Negara (PLN), which manages transmission and distribution.

Malaysia: The major operator is Tenaga Nasional Bhd, a publicly listed company with significant government ownership.

Thailand: State-owned through the Electricity Generating Authority of Thailand.

Vietnam: State-owned — Vietnam Electricity (EVN) is the sole owner and operator of the transmission grid.

Singapore: State-owned through the SP Group, a government-owned entity.

Bangladesh: State-owned through the Power Grid Co. of Bangladesh.

Pakistan: State-owned through the National Transmission and Dispatch Co.

Most countries resist major foreign participation in their electric grid systems due to obvious reasons such as the fact that they are part of a country’s critical infrastructure, and foreign participation in these systems could pose risks to national security like hospitals, transportation and communication. Allowing foreign entities significant control over grid infrastructure could compromise a nation’s ability to manage its own energy supply, particularly during crises or conflicts. Governments often see energy infrastructure as a sovereign asset that must remain under domestic control. Foreign companies, especially state-backed entities from powerful nations, might establish monopolies over critical infrastructure. This could allow them to influence energy prices or policies, potentially to the detriment of the host country.

Party

There is totally no doubt at all that China’s State Grid Corp. professionally runs NGCP, with its executives devoted to maximizing its profits. But it’s no secret the Chinese Communist Party has cells, called party groups, in nearly all of its corporations (which partly explains China’s remarkable growth). Instead of maximizing profits, these cells’ mission is to “Serve the People,” which means, in practice, advancing the party’s orders. The cells can override the decisions of the company’s corporate officials.

If armed conflict were to break out between China and the Philippines, likely because of US machinations, and if US missiles are aimed to strike at Chinese facilities in the South China Sea, the easiest way for the Chinese to win — in a few hours’ time and without firing a single shot — is to order its party cell at NGCP to turn off the country’s power. There is no doubt that the Chinese engineers from State Grid, which operates NGCP, can do this right under the Filipino staff’s noses. Who are they fooling by having one Anthony Almeda, a property executive, as its CEO? He’s not even an engineer.

Even the US, which has the most sophisticated power infrastructure in the world, has had so many power outages in the past decade (most sensational is the 2003 power outage that lasted 29 hours). Don’t tell me shutting down NGCP would be difficult.

I don’t care if the failed Maharlika Independent Fund buys out the Chinese in NGCP to save President Marcos, Jr. from embarrassment because he championed a harebrained idea that has been an utter failure.

Nationalization of NGCP would not only be for the sake of the country’s security. The billions of NGCP profits that are siphoned off to Beijing will instead remain in the country, to be used for Filipinos’ profit. That’s what most countries in the world have, in fact, been doing. What’s wrong with us?

On Wednesday: How profitable is NGCP for Sy and Coyiuto? My three-part series on the Philippine Republic as fake news continues next week.

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Simplistic, uninformed analysis on NGCP
Source: Breaking News PH