Why do we allow Chinese firm to earn billions from a PH monopoly company?

CLAIMING it is a shakedown by politicians and that it is politically stupid, my American colleague in his two-part hysterical diatribe against critics of the monopoly National Grid Corp. of the Philippines (NGCP) fails to see the real issue against it: Why have we allowed China’s State Grid Corp. — 100-percent owned by the People’s Republic of China, and the world’s largest utility firm — to own 40 percent of the transmission monopoly National Grid Corp., which thus has been able to siphon off billions of dollars into China as their profits — turned over to the Chinese state?

A related but just as important question: Why have we allowed our biggest conglomerates — the SM group and the luxury-car/insurance magnate Robert Coyuito — be the Chinese’s partners, who presumably know little about transmission, and who therefore are really just sitting on their asses waiting for billions of dividends every year?

With transmission charges amounting to 10 percent of your Meralco bill, my rough computation — using NGCP figures of average yearly revenues of P49 billion and P15 billion dividends for the past 10 years, released in a recent advertisement — shows we’re giving the SM/Sy and Coyuito tycoons P9 billion every year because of their 60-percent “ownership” and the Chinese firm, P6 billion.

Perhaps, the vehemently anti-China defense secretary and the funny-looking Coast Guard spokesman should ask the NGCP’s chairman, Zhu Guangchao — the representative of China’s State Grid Corp., who is likely a central committee member of the Chinese Communist Party — to donate vessels to our Navy or Coast Guard, not necessarily what our propagandists call China’s 165-meter-long “monster ship” so they could play better their version of hide-and-seek in the South China Sea.

Funny

What a funny country we are: We are quarreling with China to control shoals and reefs we will be able to exploit only in the far future, with our ships blocked by the superpower from extracting natural gas from the Reed Bank — while we allow a Chinese government firm to pocket P6 billion in dividends every year because of its 40-percent monopoly of our transmission grid.

Why? As long as our elites are partners of these Chinese or any foreign firm.

Back in November 2019, five years ago, I pointed out in a column I wrote how anomalous the Chinese firm’s participation in the NGCP was. No reaction from our political leaders. Sen. Imee Marcos in 2023, however, filed a resolution to investigate NGCP’s alleged violation of our Constitution that allows only 40-percent foreign equity in a utility company, which NGCP is.

Nothing came out of that. Now it’s Albay Rep. Joey Salceda, who is calling for a probe into the company over its violation of the Anti-Dummy Law. Salceda should know as before becoming a politician he had been a researcher for several brokers, a post which involves studying the stock ownership of listed firms.

While NGCP seems to comply with the 40-percent limit on foreign ownership of a utility firm, the purported investing firm, the investing vehicle of the Sy and Coyuito conglomerates, Synergy Grid of the Philippines, is listed in the Philippine Stock Exchange. Its submissions to the exchange show it has foreign shareholders accounting for 8 percent of the company’s ownership. By the so-called grandfather rule, the Filipino ownership is therefore less than 40 percent which violates the Constitution; or more precisely, the Filipino ownership is 36.8 percent, with the Chinese share rising to 63.2 percent.

However, I’m sure Synergy Grid will be able to correct that by simply buying the 8 percent of its foreign shares, which will give these a windfall. Then this issue will as before die down, even helped along by my American colleague.

Privatization

What follows is from my column on this issue from five years ago. All I can do is sigh; not a waste of my time as I got paid for it as a regular columnist.

Whatever hard-core believers of the once-upon-a-time magic wand called “privatization” will tell you, I’m sure you’ll find something deeply wrong here.

Henry Sy Jr. of the SM empire; insurance tycoon Robert Coyuito, known more as the dealer of Porsche here; and a Chinese state-owned company have been making super profits as owners of the monopoly that runs the country’s electricity transmission network.

Sy has 30 percent of NGCP, officially through his One Taipan Holdings and then through Monte Oro Grid Resources. Coyuito owns 30 percent through his Calaca High Power Corp. It is not clear though if Sy, who is either vice chairman or chairman of most of the SM conglomerate’s firms, represents the investments of that group in the NGCP or his own personal investments. I suspect though that while he may have his own money there, the SM empire’s money accounts for the bulk of One Taipan’s holdings.

The Chinese firm with 40-percent holdings is the Chinese government-owned State Grid Corp. of China, second in revenues only to Walmart, Royal Dutch Shell, Aramco, Apple and Toyota.

Why have we allowed a foreign firm to be one of the three biggest owners of a strategic and profitable public utility? It’s another horrendous only-in-the-Philippines case. In all other Asian countries, such transmission firms are owned by their governments, except for tiny Singapore, which allowed foreign companies into that sector only in 2008.

In our case, the firm with 40-percent equity and probably 100 percent in technical control is a foreign firm. The firm, which theoretically can play the two Chinese-Filipino tycoons, each with only 30-percent holdings, against each other. For Sy and Coyuito, electricity transmission, of course, is nuclear science: They are totally dependent on the Chinese firm to run NGCP.

Isn’t it foolish that we “privatized” not just a strategic monopoly but also an extremely profitable one? From 2010 to 2018, NGCP made nearly P200 billion in income, about 95 percent of which the owners promptly took out and put in their bank accounts through regular, higher-than-normal annual dividends.

I call NGCP’s income super profits, since the firm’s average return on equity from 2010 to 2018 of 36 percent is double the 16-percent average return on equity in a listing of 30 of the country’s biggest firms.

Greed

The greed for profits of NGCP’s owners is starkly demonstrated in its dividend-payout ratios — or how much of the firm’s profits they’ve been taking out as dividend. From 2010, the full year it had ownership, to 2017, this averaged an astonishing 96. This is way above the 7 to 37 ratios for five of the country’s largest firms. Amazingly, Sy’s investment in NGCP is more profitable than that in SM Investments, which has a dividend payout of 37.

With its dividend payouts in 10 years of operation, NGCP owners have recovered, if we include its income this year, its P200-billion ($3.95-billion) payment for its 25-year concession to run the transmission company. That means it reached breakeven this year: starting next year, income from NGCP will be pure profits for the company.

The cash-out of this group in buying the transmission company for P200 billion ($3.9 billion) was just 25 percent, or $1 billion, with the rest paid in installments over a period of 15 years.

As happens in most big-league corporate acquisitions, the installments were likely paid out of the firm’s enormous profits. The $1-billion cash-out was, again as in most big-league corporate acquisitions, raised through loans at interest rates, say 6 percent, much lower than the firms’ over 30-percent profit rate.

The NGCP deal, one tycoon had told me, is practically a “printing press for money,” as the investors most likely didn’t put in their own money. With NGCP’s monopoly status, banks would have fallen over each other to offer Sy and Coyuito loans to raise the $1-billion down payment.

That, ladies and gentlemen, is how big capitalism works, how big companies get bigger to become mammoth conglomerates.

But what’s disgusting in this case is that the profits come out of an essential public utility — electricity — “transmitted” by a monopoly mostly to another monopoly retail distributor, Meralco. NGCP’s profits come out of the hard-earned money of millions of Filipino electricity consumers, most of whom are poor.

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Why do we allow Chinese firm to earn billions from a PH monopoly company?
Source: Breaking News PH