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Crude prices are at their record levels, hitting $135 last week. And
the Philippines has the highest electricity rates in Asia, outside
Japan.
Before, these two verities weren’t related to
each other. In the late 1990s, when crude was doing $20 per barrel,
the Philippines already had the highest electricity rates in Asia
next to Japan.
Now that crude prices have broken the $135 per
barrel ceiling, you can expect Philippine power rates to remain the
highest in the region.
There are two basic reasons for Manila having
the most expensive electricity in Asia outside Japan. The first
reason, if you believe patriarch Oscar Lopez, chairman and CEO of
First Holdings, which owns 33 percent of the electricity
distribution giant Meralco, is high government taxes. He thinks
power rates can be brought down if the government waived taxes and
royalties on electricity. The taxes are so thick that even a
transaction that was previously taxed is taxed again. It becomes a
tax on a tax. How is that for double take?
Oscar Lopez says in the first quarter 2008,
First Gas was selling electricity to Meralco at P4.15 per kilowatt
hour (kwh). Of that P2.93 per kwh or 70 percent is the cost of gas
and P1.61 per kwh is government royalties.
The royalty is passed on to the Meralco
consumer. In addition, the consumer pays P0.80 per kwh as 12 percent
EVAT for power. Add the royalties and the VAT, and you have P2.40
per kwh of taxes. Theoretically, thus, by itself, the government can
readily lower Meralco rates by P2.40 per kwh.
The second reason, if you believe Winston
Garcia, the president and GM of the state pension fund Government
Service Insurance System (GSIS), owner of 33 percent of Meralco, is
the alleged abuses of the Lopez management. Without the so-called
abuses, Meralco rates could be brought down by P2 to P3 per kwh.
Therefore, remove the taxes and remove the Lopez
abuses, electricity rates can be brought down by P4 to P5 per kwh
and power cost will be reduced by least half the present rates.
Also, the government, through the Energy
Regulatory Commission, has been very lenient on the power companies.
It allows all the self-serving expenses concocted by the power
companies to be passed on to consumers.
Starting this year, ERC will allow rate
increases without the benefit of public hearings. This is called the
performance rate base (PBR) mechanism. Under the old return on rate
base (RORB) system, public hearings were the practice for the past
80 years before power rate increases could be effected.
RORB will now stop. ERC and the power companies
like Meralco will determine how much to charge the public and the
public has no say whatsoever about it. How is that for governance?
At the same time, apparent self-dealing between
Meralco and its sister companies has resulted in Meralco buying more
expensive power that it distributes than if it were to buy the same
electricity from the state-owned National Power Corp.
The 1,000-megawatt Santa Rita and 500-mw San
Lorenzo, both Lopez-owned, sell electricity to Meralco at prices
higher than prices previously contracted by Meralco from Napocor and
at prices higher than those available at the Wholesale Electricity
Spot Market.
For five years, First Gas was charging Meralco
power (amounting to between P20 billion and P50 billion), it never
delivered, arguing that the transmission line promised by Napocor
was not built on time. “Power was available but could not be
dispatched,” is Oscar Lopez’s explanation.
Ordinarily, if you contracted to deliver say,
1,000 McDo hamburgers and you had no bike or the road was flooded so
that you cannot deliver, the loss (as a result of non-delivery) is
yours, not the consumer’s. But that’s the way the government
agreed to being a sucker.
Also, consumers should ask why a company like
Meralco, in which the government has more direct equity (35 percent)
than the Lopezes (7.9 percent) is run with full management control
by the Lopezes.
The family picks the chairman of the board (Manolo
Lopez, younger brother of Oscar), the president (Chito Francisco),
the treasurer (Rafael Alindada), and nearly all the senior managers.
The only concession given the government is that Meralco books are
audited by the state Commission on Audit.
Meralco is effectively owned only 7.93 percent
by the Lopezes. Their 33.4 percent equity is owned by First
Philippine Holdings which in turn is owned 43.2 percent by the Lopez
family through publicly listed Benpres Holdings. Benpres in turn is
owned 55 percent by Lopez, Inc., the private holding company of the
family. So 55 percent of 43 percent is 23.65 percent and 23.54
percent of 33.4 percent is just 7.93 percent. Including shares held
personally by the Lopezes, their ownership of Meralco doesn’t
exceed 10 percent.
Government ownership of Meralco is more direct.
The GSIS has 33 percent in its name while other government
corporations such as the Social Security System (3.94 percent),
PhilHealth (0.17 percent) and Home Development Mutual Fund (.15
percent), have a combined 12 percent for a total government
ownership of 35 percent.
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