Lanao del Sur power cooperative is best argument against these dinosaurs

Unbelievable!

One could use more colourful superlatives to describe the Lanao del Sur (LASURECO) power cooperative, but it is not necessary. The bare facts are stranger than fiction. Consider these:

·         LASURECO has racked up debt of about P3.7-billion.

·         It was considered National Power Corporation’s (NPC ) most delinquent customer with outstanding debt at P2.28 billion as of June 2007 before it was put under management by NPC and the National Electrification Administration (NEA)

·         LASURECO’s systems losses had reached a staggering 63% before it was contained down to 30% by NPC and NEA, when the allowed losses for cooperatives should be only up to 14% which is already very generous

·         Its receivables collection rate had been a dismal 8%

·         It has not been paying its suppliers for years

·         It could not even pay its employees on time, if at all

·         It has failed to install an electrification project funded by NEA

The situation was so bad that NPC and NEA intervened in the cooperative’s operation in November 2007. Since then, its financial situation has improved a bit. At least it can now pay its current obligations to NPC, according to reports.

It has also started paying P1 million monthly for its P107 million it owes the National Electrification Administration (NEA). It should take the cooperative nine years to pay that obligation if there were no interests.

Well, at least NEA is getting some of its money back.

Before LASURECO came into our radar screens, we thought that the situation with the Albay Electric Cooperative (ALECO) was already the worst.

Save for a very few exceptions, electric cooperatives have not been performing well and are woefully managed.  Many of these dinosaurs have been in existence for long, and they should have been declared extinct eons ago.

Our policy makers should have a definite strategy to phase them out as the original business model for these creatures is no longer in tune with modern times.

One could start selling off the bigger of these power cooperatives and make them professionally managed corporations.

Why it is difficult to achieve, we can only guess.

The battle for Meralco: will it matter to you or me?

The Manila Electric Company, or Meralco (PSE: MER) has been in the limelight in the last few days owing to the ramp up of its share prices from around P60 a few weeks back to a record high of P126 a share last Friday. That day coincides with the cut-off date for soliciting of valuable proxies for voting during the upcoming stockholders meeting.

It is no longer a secret then that there appears to be a bitter struggle for control of Meralco. The battle lines are clearly drawn.

The protagonists are the following: On one side is the embattled Lopez group, the incumbent majority shareholder of the Company until recently. On the other side is the SMC group which has acquired a total of about 38% of the Company’s shares, as against the Lopez’ 33.4%, by the end of last year.

Enter Manny V. Pangilinan (known simply by his initials MVP), head of PLDT and First Pacific of Hong Kong, who appears to be on the side of the Lopezes. Last week, MVP’s group disclosed that it has acquired 37 million shares, equivalent to 3% ownership, of Meralco. Talks in financial circles have it that MVP has been acquiring shares from the market and from various institutional shareholders. This could have been the main cause of rapid appreciation of Meralco shares in the last few days.

Meralco of course has long been in the radar screen of MVP. He had tried to acquire a large chunk of Meralco from Union Fenosa, Lopez group’s erstwhile partner in Meralco, before but failed. Meralco also fits well with PLDT’s plan to use a large swath of the former’s fiber optic network for high speed communications. Besides, many of PLDT’s lines ride on Meralco’s power poles; so it is to the best interest of PLDT to have at least a friendly owner in Meralco.

Whatever the outcome of the current tussle, it is certain that Meralco will end up to be owned by one or two powerful groups. And either of the two groups has fondness for monopolies or businesses with dominant positions in their respective business sectors, for which Meralco is a prime example.

Meralco is the sole franchise holder of electricity distribution in Metro Manila and surrounding provinces. Its franchise covers some 25 cities and 86 municipalities and has some 4.5 million customers.

The Lopez group has been increasing its power generation assets in recent years through First Gen Corporation (PSE: FGEN) by acquiring plants and assets from the government. Its aggressiveness however, has cost it dearly, and the group has piled up huge debt, which it finds difficulty in servicing on time, if we are to go by its recent actions.

It has been raising cash by selling assets like its toll way business, the Pantabangan-Masiway hydro asset to its subsidiary Energy Development Corporation (PSE: EDC), and (unsuccessfully) a chunk of Red Vulcan Holdings which is the vehicle it used in acquiring EDC. In addition is has been trying to raise cash from the debt market.

With its precarious financials, will the Lopez group eventually sell out to MVP?

Meralco has been considered the crown jewel of its empire, but head of the Lopez clan has been quoted to blurt out, “they can have it!” referring to Meralco at the height of Winston Garcia’s GSIS failed takeover of the electricity distributor a year ago.

At an acceptable price, any of the chunks of the Lopez empire appears to be for sale.

It used to be that ownership of Meralco—with the exception of the Lopez family—is restricted to 10% to one entity, by virtue of its being considered a vital service provider.

At the pace the Meralco drama is unfolding, it is just a matter of time, which could be sooner than later, that it would end up in the hands of a single dominant group. Which can be frightening to consumers considering the monopolistic status of Meralco in electricity distribution.

In the end, it will not matter much to customers who will end up owning Meralco. Both protagonists are of similar stripes and are likely to run Meralco in much the same way.

Perhaps it is fitting to revisit the original restriction on ownership sans the Lopezes to make Meralco a truly public company—and perhaps it could then give more accountability to the consumers.

Note added: Tuesday, March 10, 2009—Meralco shareholders named Beneficial Trust Fund and New Gallant Limited reported yesterday their combined 113,313,389 shares of Meralco. An apt name if this pair belongs to a gallant white knight in a shining armor.

Postponement of power crisis is no reason to rejoice

During a recent industry briefing, Department of Energy Secretary Angelo Reyes announced that brownout in Luzon may only happen next year as the electronics industry, the biggest power user in the island, continues to be pummelled by a lingering financial crisis.

He even considers it a positive side effect of the continuing economic crisis even as power supply in the Visayas and Mindanao has tightened with brownouts already occurring at increasing frequency.

How could he say that?

Trying to assuage fears of consumers of massive power outages by playing up the woes of the electronic sector is not a comforting stance given by no less than the top guy in charge of a Department which is supposed to nurture the power sector to health. Such a blasé attitude could spawn complacency when in fact the power industry should be on a war footing to avert a looming power crisis.

He did promise to give the list of prospective power investors, but couldn’t provide it at the right moment—which is the economic briefing itself. Such ill-preparedness smacks of the attitude the Department has shown in dealing with the problems in the power sector.

What we need is a strategic power development plan, not ad hoc knee-jerk reactions to problems as they tumble along. An important player and a responsible person of the industry should not express glee when a looming crisis was unexpectedly averted due to another crisis.

The Philippine Chamber of Commerce and Industry (PCCI)has already shown that brownouts had started in the Visayas and this year it will be Mindanao’s turn, according to its recent assessment of the prospects and challenges (read: problems) of the power sector. Next year, Luzon will be hard hit.

The Chamber estimates that to avert the crisis, there is an urgent need to build 3,000 MW of capacity in Luzon between now and next year, another 1,000 MW in the Visayas and 1,000 MW in Mindanao. Yet our Energy department chief cannot even provide the potential investors, or even rattle off potential investments from his head—which he should have easily done if he is in tune with the industry. Most likely, there is no such list.

But PCCI vice president Jose Alejandro reminded everyone that conventional base-load power plants with at least 300 MW could take at least three years to build, which is his polite way of saying that the power crisis can no longer be averted.

Our energy department head has apparently not imbibed the crisis mentality during the time of his previous boss, ex-President Fidel Ramos, when the latter had to compromise with high costs of BOT plants as a stopgap measure to a raging power crisis then.

It seems we are now resigned to debilitating power shortages starting this year.