Page 2 of 2 Power politics in the Philippines
By Joel D Adriano
investigation into Meralco's operations, with a stated view towards lowering
the company's rates.
Meanwhile, senator Juan Ponce Enrile went a step further and questioned the
legitimacy of the Lopez family's controlling stake in the company. The family
has throughout denied any foul play or pricing manipulation, but the
controversy has raised the company's political risk premium and has already
taken a toll on its capital position via the fast-declining share price.
The Lopezes are one of the Philippines more storied corporate families. Along
with its stake in Meralco, the family owns two power generation plants, the
geothermal firm Philippine National
Oil Company-Energy Development Corp as well as the country's biggest media
conglomerate, ABS-CBN Broadcasting Corp.
Political troubles are nothing new to the clan. The Ferdinand Marcos
administration was wary of the Lopez family's commercial and media power and
when his government declared martial law in 1972, it forcibly took over the
family's media businesses and put then patriarch Eugenio Lopez Sr's son in jail
for alleged subversive activities. Under political pressure and with a favored
son in detention, the Lopez family sold its stake in Meralco in 1978 for more
than 800 million pesos.
When Marcos was driven from power in 1986 and Cory Aquino was in the political
ascendancy, the Lopezes were able to regain their shares in Meralco. The
family's broad business interests came under intense media scrutiny, with
never-proven allegations of receiving preferential treatment, during Joseph
Estrada's administration because Manuel "Beaver" Lopez married Estrada's
daughter, Jackie.
Meralco is a huge money-spinner for the Lopez family, with an estimated 4.3
million customers, of which 80% are residential subscribers in the country's
strongest purchasing power area, metropolitan Manila. Viable competition is
scarce: the company is 10 times larger than its nearest rival, the Visayas
Electric Co, in terms of number of customers served.
Critics say that allows Meralco to charge higher than market rates, despite the
economies of scale advantages the company enjoys through operating in areas of
high population density. Last year, Meralco on average charged 4.90 pesos per
kWh, considerably more than its closest competitors which averaged between 3.80
pesos to 4.10 pesos for the same amount of power consumed.
Pricing power
Pete Ilagan, chairman of the consumer group Nasecor, blames those comparatively
high rates partially on the pricing of power that Meralco purchases from the
Lopez family-owned IPPs. He also points to what he perceives as laxity at the
Energy Regulatory Commission, which is charged with reviewing power companies'
petitions to raise rates with an eye toward safeguarding the public interest.
Meralco buys about 50% of its power from the 1,000-megawatt Santa Rita and the
500-megawatt San Lorenzo plants, both of which are owned by the Lopez family.
The company buys an additional 40% from NPC and the remaining 10% from WESM. As
per a contractual agreement, power from the two family-linked IPPs is delivered
at a flat 4.24 pesos per kilowatt hour rate, regardless of what time of the day
the power is tapped.
In comparison, NPC's rates depend upon when the power is actually tapped, with
fees varying widely for peak and non-peak hour consumption. NPC charges 6.06
pesos per kWh for peak times, but only 1.80 pesos per kWh for non-peak hours.
About 80% of Meralco's purchases from NPC are transacted at peak hours, a
purchasing policy NPC and others have said is done to manipulate public
opinion. In a recent statement, NPC denounced a Meralco public relations
campaign carried over its family held media outlets, which blamed NPC for the
company's high power rates.
Dennis Gana, an NPC spokesperson, said the media campaign was misleading
because Meralco's take-or-pay contracts with the Santa Rita and San Lorenzo
power generators include guaranteed volumes of about 85% of each plant's
capacity, which is paid regardless of whether Meralco actually takes the
guaranteed minimum amount of power each month.
As such, he questions whether Meralco should continue to buy such a large
portion of its non-peak power from IPPs, when the contracted minimum has
already been met during peak hours and NPC rates are more than 60% cheaper. The
NPC spokesman also said that consumers who rely on NPC for 100% of their power
needs enjoy rates of between 3.60 pesos per kWh to 3.90 pesos per kWh lower
than Meralco's consumers, which on average were billed 4.90 pesos per kWh in
April.
How the Meralco controversy is finally resolved will inevitably have an impact
on investor sentiment beyond the energy sector. The Lopez family-owned IPPs
both came online at a time when the Philippines was swamped in overcapacity.
Over the past decade, however, new investments in power generation have been
few and the DOE warns that without substantial new outlays a new power crisis
could loom as early as 2010, when a number of aged power plants are scheduled
for retirement.
The current controversy over Meralco's pricing and rumors of a possible
government takeover of the power company has raised investor fears of more
government intervention in the market - including among those who have lamented
the country's very high electricity prices. The Joint Foreign Chambers of
Commerce issued a position paper on May 27 warning of the possible adverse
impact of too much government interference in the energy sector. Fairly or
unfairly, the Lopez family once again finds itself stuck in the political
middle.
Joel D Adriano is an independent consultant and award-winning freelance
journalist. He was a sub-editor for the business section of The Manila Times
and writes for Asean BizTimes, Entrepreneur Philippines, Masigasig and People's
Tonight.
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