Nationalize Meralco

23

Second of Two Parts

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It’s been a week, and many parts of the National Capital Region and Southern Luzon are still without electricity. And these are supposed to be the country’s most developed areas, which account for 50 percent of our GDP and a third of our population.

The company in charge of this area is the country’s biggest power firm, Meralco. It has never been as profitable as it has been in the past several years, with its ultimate biggest controlling stockholder, Anthoni Salim, remitting about P20 billion in Meralco profit since 2010 to his Hong Kong corporate headquarters, and then to his four firms in the tax-free havens in British Virgin Islands and Liberia (See my column, “Indonesian Magnate Controls Meralco,” Feb. 23, 2014).

How an Indonesian can get to control such a monopoly in an industry that affects the lives of millions of Filipinos is, indeed, another indictment of our weak state, in which crucial regulatory agencies are captured by corporations and elites. In the cases of Meralco and its mother firm, Philippine Long Distance Telephone Co., the capture agency is mainly the Securities and Exchange Commission that is supposed to enforce nationality requirements.

Meralco a failure
But the failure of Meralco’s infrastructure in withstanding a typhoon also exposes the bankruptcy of a policy – really a gargantuan lie—adopted since President Cory Aquino’s watch.

Patriarch of the clan that owned Meralco: His proposal would be the best.

Patriarch of the clan that owned Meralco: His proposal would be the best.

This is the idea, propagated of course by the elites, foreign and local, that would profit from it, which our country stupidly mimicked from the West: privatization, that public services, to be more efficient, must be run by private enterprises.

The notion actually defies common sense and logic:

Public utilities are, by definition, essential services a state has the duty to provide its citizens. How does it do this? By getting contributions from its citizens, which we call taxes, which in principle should be provided mostly by the rich, the elite.

But what does privatization do?

It even makes public utilities a source of profits for the elite. In Meralco’s case, the private owners would first have to recover at least 6 percent of what it spent to buy the shares – or the cost of borrowing the funds from banks. Then it would need to make at least 10 percent—the minimum profit rate of capital in our country.

That means a total of 16 percent returns the owners need to make Meralco worth their investments, which they, of course, can recover only by raising the prices of the firm’s product, electricity. That’s how much more—at the very least ‚Meralco’s electricity rates are than if it were run by a non-profit state firm.

The usual argument against government ownership is that it is inherently inefficient, as it does not have the profit motive, and its managers don’t have to answer to shareholders.

Rather than arguing about this theoretically, I will just stick to facts. Many government corporations or state-run firms in the world are even more efficient than their private counterparts. Even here, the Bangko Sentral ng Pilipinas is considered to be as efficient as any private firm.

One of the biggest investment firms in the world is Temasek Holdings, which is owned by the government of Singapore. And even our elite capitalist group, the Ayalas obviously are in awe of Temasek’s capability: its subsidiary Singapore Telecoms is the biggest stockholder of Globe Telecoms, and reportedly has full control of the technical side of the business.

Except Singapore
Except for Singapore, which is after all, just a fourth of Quezon City in area and population, we are the only country in Southeast Asia that got fooled by the propaganda that the power industry must be run by private firms.

Indonesia: The electricity market of Indonesia is dominated by the state-owned Perusahaan Listrik Negara (PLN, National Electric Company). Except for several small, closed private networks operating in industrial areas, PLN is virtually the only supplier of electricity in the country. This is because under the 1985 Electricity Law, only public utilities are allowed to supply electric services.

Malaysia: Three state-owned utilities—Tenaga Nasional Berhad (TNB), Sabah Electricity SDN Berhad, and Syarikat Sesco Berhad—operate and manage each of the country’s three separate grid systems for Peninsular Malaysia, Sabah, and Sarawak. While Malaysia also has privately-owned independent power producers like us, all power is sold and distributed only to the state-owned TNB.

Thailand: Most of the generation and all transmission activities are operated by a state-owned utility, Electricity Generating Authority of Thailand (EGAT), with a few very small power producers. The distribution and supply activities are the responsibility of the Metropolitan Electricity Authority and Provincial Electricity Authority, which gets its power from EGAT.

People’s Republic of China: While private power firms have been allowed in the past several years, China’s electricity industry is controlled and dominated by 11 state firms. The State Grid Corporation of China (SGCC), the largest state-owned electric utilities company in the world, distributes electricity throughout China.

This SGCC is the state corporation which is the partner—the controlling partner, some allege —of mall-magnate Henry Sy’s son in our National Grid Corp. of the Philippines (NGCP), the firm privatized out of the National Power Corp.’s transmission part. How ironic is that? We privatize a state firm, which is taken over by a state firm of another country? It is NGCP which Meralco had blamed for not being able to power parts of Southern Luzon.

The electric power industry in Cambodia, Laos, Brunei and Burma, are all run by state firms, of course.

An academic in Australia who specializes in this issue, Prof. Sharon Beder, summarizes what happened in the rest of the world that got fooled by the myth of privatization:

The global experience
“Dozens of governments have embarked on the pathway to electricity deregulation and privatization since the mid­1990s. It has become the accepted wisdom amongst governments and opinion leaders despite the consequent price rises and disasters that have followed in its wake: the series of blackouts that have been experienced from California to Buenos Aires to Auckland; the government bailouts of electricity companies that have been necessary in California and Britain; the need for electricity rationing in Brazil; and the fact that it has become too expensive for millions of people from India to South Africa.

Electricity deregulation and privatization is referred to as ‘liberalization’ by its advocates who use the term to disguise what is in essence a massive shift of ownership and control of electricity from public to private hands, in the name of economic efficiency and in the cause of private profits.

‘Liberalization’ has meant that maintenance teams that were once fully staffed have been dramatically cut leading to frequent equipment failures. It has meant that privately owned electricity conglomerates are able to blackmail governments into bailouts and high prices with threats of blackouts.

And it has meant that the planning function of electricity authorities that once ensured adequate generating reserves for times of peak demand, and kept infrastructure up to date in developed countries, have been abandoned to market forces. Because of market forces, electricity prices are based not on the cost of production, but on how desperately consumers want electricity and this has led to sky­rocketing prices whenever private companies have been able to limit supply in times of high demand.

The privatization of electricity is not something that citizens have demanded nor wanted. In general, there has been very little public participation in electricity reform decisions and as the consequences are observed, there have been many bitter protests against electricity privatization.

Popular uprisings have occurred in Argentina, India, Indonesia and Ghana. Protests have halted privatization proposals in Peru, Ecuador and Paraguay. In the Dominican Republic several people were killed during protests against blackouts imposed by privatized companies.

In South Africa, thousands marched during a two-day general strike to protest privatization, which they labeled “born­again apartheid.” In Papua New Guinea, students were killed when thousands rallied against the planned privatization of government services including Elcom, the electricity authority. Even in China, workers protested the sale of a power plant in Henan province to a private company and threatened to “block the state highway and lie on the railroad while the trains run over us”.

Meralco, a microcosm
Meralco is a microcosm of our history, and the sad situation we are in:

It was set up during our period of US colonialism, by —who else—US corporations. In 1962, the landlord-political clan headed by Eugenio Lopez, Sr. took control of it, funded by massive loans from a government bank. During martial law, the strongman Marcos took it over from the Lopezes, had his wife’s brother Kokoy Romualdez supervise it, and pretended to turn over ownership to its consumers. Cory Aquino handed it over back to the Lopezes. The Lopezes in turn, as their other firms were sinking to bankruptcy, sold it to firms controlled by the Indonesian tycoon Anthoni Salim.

I would like to think reforming the microcosm that is Meralco could be a template for reforming the country. Ironically, such reform could be along that which was proposed by Eugenio Lopez, Sr. in his letter to Marcos dated Feb. 19, 1973, after Marcos imposed martial law, and which had the Lopezes fleeing abroad, and his son thrown in jail:

“Nanding [Eugenio’s brother and former vice president Fernando] and I are also in accord with your concept of democratizing property in the Philippines and believe that ownership of industries vital to the economy should be dispersed as widely as possible. For this reason, Nanding and I would like to offer the sale of our holdings to a cooperative composed of Meralco employees, customers and the general public that could be organized with the assistance of the government.”

I would like to believe such a window of opportunity for such a nationalization of Meralco —in the word’s two senses of reverting it back from foreign hands and putting it under government control—would occur when the Indonesian magnate Salim is required to comply with the Supreme Court ruling on the nationality requirement of public utilities.

That could be soon, with the Supreme Court’ s newfound strength in imposing the rule of law in this land.

tiglao.manilatimes@gmail.com
FB: Rigoberto D. Tiglao

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23 Comments

  1. Mr. Tiglao,

    If you really believed that utilities like Meralco is best run by Government why then you did not do anything about it when you we’re in the government of former
    Pres. Gloria M. Arroyo? Can you please enlightens your readers what have you done if you did something about it.

    Thank you

  2. What is happening to us. Can everyone believe that the PHL government can not install a power plant so the power can be used to relieve the power outages? Yes, that’s the EPIRA law saying. WTF is this? This (section) in the law is unconstitutional and needs to be amended. Anyway TY for the article.

    • Many hates ERAP unfortunately but he was the only president who said that EPIRA is an evil law. Meralco and ABS/CBN owned the then Chronicle but later on closed shop because it was against the law. If our president loves his country like Hugo Chavez, nationalization of Meralco and power utilities was a concuded business 4 years ago.

  3. David M Meyer on

    Wonderful! To hear at last a voice of sanity …. How much longer can we be dominated by a monopoly–The Filipino people deserve a much better service..
    Thank you for giving us a brief history of the company–I for one, am enlightened –Refreshing to hear a voice of reason..

  4. Member of the Middle Class on

    Thank you once again Mr Tiglao. Please keep the facts and your thoughts coming. Cheers!

  5. Its a monopoly. What it needs is competition to lower the price of electricity and better service. Government is too inefficient.

  6. Reliable, economical, and growth-supportive electricity is a noble end. Nationalizing the industry is a proposed means towards that end.

    Meralco and Transco/NGCP have been mentioned. What about the generation sector which is largely in private hands, and crying out for more plants to avert a power shortage? How to attract the investments with a Damocles sword of impending nationalization? Or is Mr. Tiglao proposing to leave the generation sector be? What percent of the total bill is the generation charge?

    Back to Meralco. Do the franchise terms give Meralco any incentive to reduce system losses and improve responsiveness? Is Meralco complying with all the conditions and discharging all of its franchise obligations to the letter? Is SEC really the main captured agency? What about the Energy Regulatory Commission (ERC)?

  7. The dark side of opportunism, is when an individual or group of individuals take the opportunity not to enhance the public, its interest and share the gains to ensure a progressive society, but to undermine the crucial step towards progress and which empower a few to marginalize a great part of the social class.

  8. I have been following Mr. Tiglao’s writing for sometime now. He is the one person in the entire country who makes sense but mostly who cares aout the country. He is a writer who has the best ideas for the country unfortunately those “best ideas” stop there. No one, none from the national leadership, from the Congress, the industry, pick up these ideas to effect and implement them. You would think some bright legislator from Luzon or Mindanao would take the initiative, no, nada. A week from now, Mr. Tiglao’s column about Meralco will be forgotten and we will continue to suffer from Meralco and its alien owner. I am a private Filipino citizen who’s yearning for the country to improve. But it seems in the last decades we have had nothing but bum politicians and government officials who do nothing and were actually illiterate about governing. God help the Philippines. Mr. Tiglao, I ask you to do everything to make your ideas into fruition.

  9. Here in the Philippines, the government can take the electricity sector now. Payment can be made with 20 year bonds paying 0.5% interest. Then let’s say in 3 years it can give it to me. We would be so appreciative of being made into one of the controlling families of the PH.

    Let’s get serious. Pass a law permanently establishing certain sectors under government control.

  10. The downside for your proposal is the track record of the government in running any business. We will just be back to the old Napocor days when sovereign debt incurred for power generation increased exponentially while power supply went the other way. We Filipinos are simply not fit for businesses run like the Salvation Army.

  11. Without the massive nationalization of the electricity industry, the government could fundamentally affect the production and pricing of electricity by creating a publicly owned electric facility to augment existing generating capacity. In this way, the government can assure the adequacy of available power through the national grid, and affect pricing (by means of market-determined supply and demand) through its impact on aggregate supply.

  12. Nakakalungkot lang si noynoy ay kontrolado ng mga elite,lopezes,ayalas at aboitiz,ang masama kasabwat si noynoy dahil kahit public hospital ay kanyang pinaprivatise,sa lahat ng lakad ng pangulo kasama niya ang mga ito at lahat ng project ng gobyerno ay sila ang nakakakuha,!!kawawang mga pilipino ginagatasan ng sarili nating pangulo!!wala na yatang makakatulong sa atin!lalo na pag-ang cha-cha ay napasok na ang buong lupain ay tuluyan mawawala!!tenk u mr tiglao,kailangan ng bansa natin angkatulad mo at si mr. Makabenta!

  13. Accdg to your article Meralco under Lopezes was financed thru a loan from the gov’t banks therefore what Pres.Marcos has done by turning Meralco over , as a gov’t owned company then was legitimate considering it is the taxpayers money was used by the Lopezes to acquire Meralco. And the same scenario with Hacienda Luisita w/c Cory Aquino’s father borrowed from Central Bank -the peoples treasury favored ,by then Pres Ramon Magsaysay. How come our gov’t institution and banks esp, Central Bank reserve be allowed to engage and give special favor to selected few the rich elite, wasn’t there any law that prohibits any private individual be given preferential treatment by gov’t banks)esp. the Central bank (the national treasury of the Philippines) it seems that if there were laws in place but not enforced then ” the abuse of the rich elite are tolerated to dominate at the expense of the ignorant majority poor. Martial law was necessary and Pres, Marcos was right al along and this recent exposure of many corruptions justified what is happening today. This President and his mother and their alapores are good example of the lawless, God is saving the Philippines from those many injustices and we prayed.

    • Aaahhh the first rule of true capitalism, the profits go to the individual the debts reside with the people. The louder they talked about honor the quicker we counted our spoons.
      Allen Skeen

  14. Amina A. Agrava on

    You should not have neglected to mention that the late President Corazon Aquino returned Meralco to the Lopezes without paying for the loans it owed to the Development Bank of the Philippines and perhaps other government financial institutions. Then DBP President Jesus Estanislao insisted to President Corazon Aquino that the Lopezes at least sign some kind of instrument and pay some token amount to manifest their indebtedness to the government. But Mrs. Aquino–supported by more powerful members of the Cabinet insisted on just giving away billions to the Lopezes and trash Estanislao’s insistence on the rule of law and the future benefits of the people and the government.

    • I knew she returned Meralco back to Lopezes but the under the table consequences was not. Tnx for the info.

  15. we pray for that to happen Mr.Tiglao.Its time to make a stand.we have been fooled/deceived too long by those energy/power cartels.We are enlightened by ur continuous expose/fight for the Phil people.thank u

  16. It is only in the Philippines I guess where the public are suffering from too much cost of energy. The private energy providers such as the Aboitiz, Lopez/Pangilinan are raking in lots and lots of profit. Marcos should have nationalized it during the marshal law years. Not only in Asia are countries running their energy sector. It is also in the Scandinavian Countries, U.K. and the other E.U. countries where energy and other utilities are controlled by the government, not private companies. The anomaly is all our utility suppliers in the Philippines are oligarchs and pamper who sits in power.

    • It’s not all as it seems in the E.U, the control of the gas supply so essential for cooking and heating in Europe lies with Russia. This has such a powerful influence over ordinary people’s lives that it’s being used as a tool to abort any investigation into the responsibility for the recent MH17 disaster, so much for giving away your sovereignty. We have the absurd situation in Australia where the solar energy being captured by private householders and some forward looking businesses, has resulted in less power taken from the national grid. The power generation companies, mostly overseas owned, now put up the price of electricity defying the laws of supply and demand. We just wait, in gleeful anticipation,for the day when the government announces a tax on sunlight, the next step in our elected representatives pandering to the elite.
      Allen Skeen

    • Panahon ni gloria ng ipasa ng kongreso ang epira law at nagkalagayan pa. Di ba mr. Tiglao miembro ka ng gabinete noon? Bakit di mo tinutulan ang privatization nito.