Oligarchs’ power plunder rages

CONSUMERS DEMAND!
Herman Tiu Laurel
11/7-12/2011



Not a week passes without new and shocking reports about the ongoing looting of the pockets of every Filipino electricity consumer and its dire consequences on our national economy. Take this latest news in the business pages, “High power rates force exporters to relocate,” depicting the exodus of Philippine export companies to China or Vietnam, where power costs are as low as $0.05/kWh compared to the Philippines’ $0.25/kWh. No wonder Vietnam got $8 billion in foreign direct investments in 2010 and China, an astronomical $105.7 billion; while the Philippines only had $1.7 billion.

Why is this country of 95 million people, a supposedly better educated population and champion of “democracy” in the region, tolerating such an inane, unjust, if not economically suicidal, situation in its power sector? Honestly, nothing will come of any effort to improve the economy without slashing our power rates by half, along with the throats of the power plunderers.

Nora Halili Lao, holiday and gifts sector director of the Philippine Exporters Confederation (PhilExport), said in various reports that the high power costs in the country make exporters’ prices too high to be competitive with their counterparts in other lands. She added that up to 40 to 50% of exporters’ production and operating expenses are attributed to power costs.

As a result, “producers and manufacturers suffer. They… are no longer competitive, so they go to (other) countries for an ocular inspection to determine if they can compete (from there),” Lao said in a statement posted on the PhilExport website.

One fishing company I know personally has subsidiaries already operating in Vietnam, and is even using China as a cold storage point for its fish supplies to avail of the cheap storage costs there. Filipino furniture companies have also relocated to Vietnam.

While this dire plea is read in one part of the newspapers, right beside the same panicky stories lie side-by-side corporate reports of the glowing profit margins and continuing acquisitions of giant, oligarchic power companies.

For example, this headline, “Meralco eyes P14.5 billion core net income for 2011,” reported the Manila Electric Co.’s expected rise in profit from 2010’s P12.2 billion to this year’s P14.5 billion, which its CEO Manny Pangilinan announced is based on a mere 2% increase in its volume of energy sold!

Reading this report, one might believe that the increase is only thereabouts of 12% when it is actually double that (even though a 12% profit increase on a mere 2% volume rise is already anomalous for a public utility with a captive market).

Another headline, this time from the Philippine Star (“Meralco net income surges 25% to P9.95 billion in 9 months on higher sales”), was more accurate in stating the company’s actual profit jump. But it was still not without any PR spin due to the less-than-honest linking of its increased profits to “higher sales and controlled expenses.”

In all, what these reports hide is the surge in Meralco’s “capital expenditure” (capex) of $9 billion that is charged to consumers, even when this is not really invested while its manipulated distribution rates actually go up. This capex is based on what the Energy Regulatory Commission (ERC) terms the Weighted Average Cost of Capital (WACC), which uses Meralco’s claims of the cost of its assets as basis for setting rates, even when such claims are overvalued by as much as 100%--and despite these being utilized by only 50%. These facts, already confirmed by appraisal companies utilized by the ERC and Meralco, were revealed in hearings participated in by our anti-power plunder advocates such as Mang Genaro Lualhati, Jojo Borja, Butch Junia et al. But wait; there’s more.

On top of these is the exemption from bidding that the ERC had granted Meralco and all PBR (Performance Based Regulation)-qualified distribution companies for all their equipment purchases, which has resulted in asset overpricing of over 500% (such as in the case of Meralco’s transformers, which its buys from its own subsidiary).

Another item announcing, “Aboitiz Group remains keen on assets of Napocor,” triggered me to “connect the dots.” In the other newspaper I write for, my recent article, “A new Psalm-ERC-IPP con game?,” touched on the Power Sector Assets and Liabilities Management Corp. (Psalm)’s scheduled privatization of four power barges--this as the National Grid Corp. of the Philippines (NGCP) issued a “red alert” on another impending power crisis in Mindanao.

I recall the same drama being staged between 2009 and 2010 about an El Niño threat to Mindanao’s hydro-electric plants, with Psalm selling off two power barges (PB 117 and 118) at around the same time to the Aboitiz group for $30 million, which the latter miraculously pegged at a hefty $84 million as a fair market value, which it then submitted for approval to the ERC as the basis for its exorbitant rates when the same power barges were needed during the island-wide power crisis. Take note: The crisis was not even largely due to El Niño but the Psalm and Napocor expedient of draining hydro-electric dams and the many untimely power plant maintenance shutdowns.

Manipulated crises and privatization? Oh, the link is too obvious.

By December this year, Psalm even wants to privatize power barges 101, 102, 103, and 104. I predict these four will be sold off at the same bargain basement prices as PB 117 and 118 to one or several of the usual power oligarchs. No matter who among them will be lucky enough to get these for a song, the acquisition cost will certainly be passed on to consumers through the ERC appraisal system, at a price at least three times higher than the original cost, with this ending up as the capital base. In short, what this means is that the power plunderers get to acquire these assets without putting out any of their own money and get to enjoy windfall profits immediately. It’s time to end this madness!

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