Mindanao’s power woes

The Mindanao power situation is becoming a choice between the devil and the deep blue sea.

The devil of course, is the perceived polluting coal-fired power plants that are mulled to be erected in Mindanao to address the looming power shortage on the island. To be sure, Mindanao is not stuck up solely on coal plants. There are lesser “devils” around like the planned 50 MW Mindanao 3 geothermal plant project of Energy Development Corporation (PSE:EDC), which doesn’t sit well with environmentalists due to its proximity to the Mt. Apo National Park, and a 42-MW hydro project in Davao which has also attracted some opposition from locals.

The deep blue sea is more like pitch darkness due to expected brownouts if none of these projects could take off on time due to local opposition. The year of reckoning is pegged in 2015 by the Department of Energy when power demand completely outstrips supply assuming a conservative power growth of 3 % per annum, and the committed power projects are on track.

The reign of darkness could come earlier by 2012 if one or two of the bigger power projects are derailed. Or if big power-hungry projects like Hanjin’s shipbuilding facilities in Misamis Oriental and big malls come on stream to GenSan and other booming cities in southern Mindanao.

At the same time, the DOE considers this year as critical for the Mindanao power grid with peak demand reaching 1,525 MW.

One of these power projects to help alleviate Mindanao’s power shortage is the recently unveiled 200-MW coal-fired power plant to be built in Sarangani province by the Alcantara-led Conal Holdings Corp. at a cost of $450 million. The proponent claims that the plant is “on track” to operate in three years despite that fact that it is still in the development stage.

Conal Holdings is backed by the Electricity Generating Corporation (EGCO), one of the largest generating companies in Thailand and Southeast Asia.

The plants would be built in two stages: Stage 1 comprises a 100-MW unit and the whole facilities for the power station complex, while Stage 2 would be the second 100-MW unit which would be constructed within 24 months after the commencement of operations of the first unit. The second unit is targeted to be completed in 2014.

If coal plants are considered dirty, then why are these preferred by investor- developers?

Compared to other types of generating plants like hydro or geothermal, coal plants have the shortest time of completion, and theoretically, one could erect them just about everywhere. The fuel is not a problem since one could just get it from the open market.

Mindanao is no stranger to coal plants. The speed in which coal plants can be constructed if so desired is best exemplified by the record completion of the 232-MW STEAG coal-fired power plant in Misamis Oriental, a significant control of which has now been acquired by the Aboitiz group.

The apparent choice of coal is of course dictated in the end by economics. But with not much choice considering the looming crisis, Mindanao may not have much choice but must make a pact with the devil.

Or the people there may have to consider coal plants not the devil himself, but a fallen angel with some hope for redemption. The choice is easily made if one looks at the other side and sees nothing but an abyss of darkness.

Meralco shows way in sourcing ‘clean energy’

Can you choose a ‘clean energy’ supplier for your electrical power needs? Theoretically, yes, even if you are tapping the transmission grid.

 Manila Electric Company (PSE: MER), the country’s biggest power distributor that supplies Metro Manila and environs with electricity is showing the ‘clean energy’ path by planning to source part of its electricity load from two more methane-gas recovery plants.

 In a recent press briefing, Meralco president Jose P. De Jesus said the distribution company will source electricity from the methane gas fired plants to be owned and constructed by Montalban Methane Power Corp. (MMPC) which already owns the pioneering plant at the Montalban (Rodriguez) dump site. The new plants will be situated in Malabon and Sta. Rosa, Laguna.

 Recently, Meralco has already signed a contract with MMPC for the latter to supply it with up to 8 MW of power. The supply arrangement would allow Meralco to source relatively cheaper electricity from MMPC as the generated power would be tapped directly into sub-transmission lines already owned by the firm, thereby bypassing the wheeling charges imposed by the grid operator.

 What is more significant though, is that it allows Meralco “to increase its capacity and alleviate global warming through the reduction of carbon emissions during electricity generation.” Part of the statement may be public relations efforts, but the step it is taking would be a prototype of what steps distribution firms should be taking in the future.

 Sourcing from renewable energy sources is now actually embodied in the recently passed Renewable Energy Law under the heading renewable portfolio standards (RPS). Under this concept, a distribution company is compelled to source a percentage of its electricity supply from renewable energy generators (solar, wind, geothermal, biomass) by a given time, say after ten years.

 Our own renewable energy law do not have specific guidelines on how this is to be achieved as the implementing rules and regulations (IRR) have yet to be hammered out. Of course, these rules are not straightforward to craft.

 Some questions that need to be answered are: (1) what is the appropriate percentage? (2) What would be the timeline for the distribution company to achieve the target percentage? (3) Are there available sources for the distributors to reasonably meet the law’s requirements? (4)Will the prices be competitive enough against traditional sources? (5) Would these renewable energy sources be in the “right places?” And so on.

 These questions are inextricably intertwined and need to be addressed to the satisfaction of all the stakeholders from the government, the generator, the distributor and the consuming public.

 Now that Meralco has actually conscientiously contracted a portion of its distribution needs from a renewable energy source, it would be interesting to watch how this arrangement would pan out. Our energy regulatory bodies, especially the recently-convened National Renewable Energy Board which is tasked to oversee the implementation of the renewable energy law, should study in detail the nuances of this experiment—as well as of others, including that of the Bangui Bay wind farm and the biomass projects in the Visayas—to come up with a sound and equitable renewable portfolio standards.

The success of this particular provision could determine whether we would be getting cleaner power or more of the polluting energy sources we already have in the future.

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.

Palawan power crisis once more highlights weakness of electric cooperatives

Palawan business leaders have been feeling the pinch of persistent and prolonged power brownouts in the province and the city of Puerto Princesa and warned the problem “could get worse” and could jeopardize efforts to make Palawan a major international tourist destination.

In the past few months, local business leaders have noted that the power interruptions have become longer and more frequent, and have become a major disincentive to business and tourism.

According to the National Power Corporation (NPC), there are some 40 megawatts (MW) of installed electrical capacity in the province while the peak demand reaches only 21 MW, so the problem could only lie within Palawan Electric Cooperative (Paleco), the local distribution unit. NPC is however silent on how much of the installed capacity is dependable, but it is unthinkable that half of it cannot be dispatched.

In many rural areas and island provinces, power supply has been a major complaint regarding basic necessities, and the common denominator of these areas is that power distribution is being handled by poorly managed, inefficient electric cooperatives. Electric cooperatives which have been given passing marks by their consumers are the exception.

Perhaps, it is about time to have a radical re-think about electric cooperatives. With no shareholders breathing on their necks, management of many of these cooperatives does not have real incentives to professionalize its operations. Oftentimes, management and members of the board are handpicked, or beholden to local officials, if not directly controlled.

There seems to be a lack of incentive to modernize the equipment, or at least maintain properly the existing ones. Customer service is farthest from the minds of these minnows pretending to be running a basic service provider.

Why is it that there is no concrete strategy to ultimately privatize these distribution units?

It used to be that these basic services (power distribution, telecommunications, and water) were thought to be a natural monopoly of the state, and therefore, should be run, or at least controlled by local government units. Not anymore, as shown by the telecommunication and water distribution—at least in major urban areas—industries.

Whenever there is clamor to privatize an electric cooperative, there seems to be a helluvah of opposition. But if you listen carefully above the din, the noise one seems to hear is that of local political interests who are likely to lose some perks and wealth once control is transferred to the private sector--not the consumers who silently groan under inefficient services and high rates.

Palawan is but a sorry example of our sordid, highly inefficient electricity distribution systems in many parts of the country.

Regulator reduces systems loss cap—but only in January 2010

The Energy Regulatory Commission (ERC), the government body which regulates the electricity business, has recently issued an order lowering the cap on electricity system loss to 8.5% down from the present mandated 9.5%--but only starting January 2010. In the same order, the limit for electric cooperatives is reduced to 13% from 14%.

The systems loss, which includes electricity lost to pilferage, antiquated equipment, design faults, administrative inefficiency and actual physical losses in the conductors, is currently passed on to the customers as added cost by distribution utilities at the allowed rate.

Charging of systems loss to the users has been under attack as being unfair from consumer groups, businesses and some government officials.

The recovery of a portion of systems loss by power utilities is allowed under Republic Act 7832 which also penalizes electricity theft.

In a statement, the ERC is also “reviewing other existing policies pertaining to rate-setting, including efficiency models [and] lifeline components of other distribution utilities and the different cost-recovery adjustment mechanisms”.

Republic Act 7832 or the law penalizing electricity theft allows power utilities to recover a portion of their system losses from consumers.

The current loss cap of 9.5% for private utilities and 14% limit for electric cooperatives have been implemented since 1999 and 2000, respectively, without adjustment.

This corner has maintained that a systems cap loss of 7% is fair, achievable and already generous under present inefficiencies, and distribution companies should strive for a systems loss of only 5%. The former figure is the average systems loss in EU countries, which is already high because it is inflated by the inefficient utilities in new member countries from Eastern Europe.

Some distribution companies in the Visayas and one or two cooperatives have actually claimed that they have achieved systems loss of below the mandated 9.5%.

The reduced cap for electric cooperatives is more of a token gesture than a real attempt at forcing more efficiency on these energy dodos. The cap for them should be ultimately aligned with those of the private distribution utilities. A viable option would be to require them to have a systems loss reduction by 1% every year until they achieve parity with the private sector. That could be done in four or five years. A carrot in terms of tax breaks and incentives for equipment upgrade should also be dangled to them.

In summary, the proposed reduction is systems loss cap that could be passed on to consumers is way too high and would unlikely to be felt by the average consumer.

San Miguel buys into Meralco

Food giant San Miguel Corporation (PSE:SMC) finally gets a foot on energy’s door.

In a disclosure to the Philippine Stock Exchange (PSE) San Miguel said it had entered into an agreement with the Government Service Insurance System (GSIS) to acquire 300,963,189 shares in electricity distributor Meralco (PSE:MER) held by the latter.

It has agreed to pay P90 per share for Meralco, more than double the firm’s closing price of P44.50 yesterday, at the very day that the stock market suffered its worst-ever percentage drop.

Under pressure from its shareholders to deliver decent returns, SMC has said that it is spreading its wings out of its comfort zone that is food, to venture into high-growth areas such as mining, infrastructure and power.

The same report also said it was eyeing a stake in Petron Corp. (PSE: PCOR) and had initiated talks with the Ashmore Group, which earlier this year took control of the refiner.

What do beer and electricity have in common? Nothing, really, except that alcohol can at least be used to power vehicles. But energy needs a lot of cash to move forward—and SMC has lots of it.

But will SMC deliver its promised superior returns with its new foray?

Meralco is in a highly regulated industry where margins, through the return on-rate-base (RORB) scheme, are capped. In addition, issues concerning Meralco’s business are highly politicized; there’s not much leeway to increase profits. If ever, Meralco’s profit drivers would be outside its core business such as those in services. Or if Meralco chooses to expand its franchise by acquiring ailing distribution cooperatives like the Albay Electric Cooperative (ALECO) or others contiguous to its franchise area.

Its interest in Petron would be good for the latter since the government would then be completely out of the refiner and fuel retailer. Petron would be less subject to political interference.

Meralco is also pleased to get a monkey off its back; its nemesis in the person of GSIS head Winston Garcia. Now, it can concentrate more on delivering power.

I have mentioned in a previous blog that Ashmore is unlikely to end up with 90% of PCOR even with its right of first refusal when the government decides to unload its stake by November. Now that SMC is in the picture, Ashmore can very well exercise that option now, and offer some of the shares to SMC. It doesn’t have to be the whole of government’s 40% stake. A possibility would be for Ashmore to offer some 25% stake to SMC and keep the 65% which is still an absolute majority control.

To recall, SMC has been trying to get into the energy business. It has participated in the Transco bidding but lost out to eventual winner Monte Oro Resources. It had its eyes on Tiwi-Makban geothermal complex according to newspaper reports, but did not submit a bid.

Now, would you rate SMC a buy?

So far, SMC is sniffing at the more mature portion of the energy industry. Unless it is willing to get its feet dirty by going into “greenfield” energy projects, alternative energy development, mining or oil field development, SMC wouldn’t merit a ratings upgrade. I would rate it a HOLD. MER would still be a SELL.

What about PCOR? Now that its shares are also battered together with the rest of the market, I would also put it at HOLD, while watching how the SMC interest would pan out.

And maybe, an upgrade to a BUY?

(Disclaimer: These recommendations are not based on financials and not by an analyst. These are given as tongue-in-cheek recommendations. Consult your stockbroker for a more learned opinion. The author is not liable for losses as a result of these recommendations.)

Suppressing the electricity price spikes

• 
  Recently, the Philippine Electricity Market Corp. (PEMC) is mulling to suspend the operation of the country’s wholesale electricity spot market (WESM) of which it is tasked to operate and oversee, to halt “significant’ spikes in trading prices.
  
  PEMC president Lasse Holopainen threatens to impose such halt if the Energy Regulatory Commission does not intervene to smooth out the sudden price upticks in the market.
  
  “That is an option. But we prefer that ERC do something about it first. The ERC can intervene and correct these prices and affect a time-of-use (TOU) rate,” Holopainen said.
  
  Under the WESM guidelines trading in the market can be imposed in extreme cases such as a wholesale failure of the grid system, threat to system security or a force majeure.
  
  But no such event ever occurred to justify any suspension. The mere threat of a temporary stop to trading in a fully functional, open market sets a dangerous precedent and could ultimately derail the ongoing electricity reforms.
  
  The recent price spike was traced to the failure of the San Jose transmission line in Bulacan which prevents the dispatch of power from the” more efficient” (read: lower priced) power plants. However, the plants referred to by the official are the Sual and Masinloc coal-fired plants, with a combined capacity 0f 1,800 MW are hardly the efficient plants around.
  
  The effect of this breakdown was that based on PEMC’s estimates, the settlement prices – the price the trader pays to WESM- have spiked to as high as P18 per kilowatt-hour which could ultimately redound to a higher price for the consumer.
  
  “This is an unusual occurrence and the congestion will be there until September to October. But National Transmission Corp. (TransCo) said they are now repairing it,”
  Holopainen said.
  
  We beg to disagree.
  
  Equipment maintenance is a necessary part of doing business and with proper execution and timing, the effects of an “unusual occurrence” such as a breakdown of a major high-voltage transmission line could have at least been mitigated. But what caused the spikes is more than unusual. It is more due to inherent and systemic weaknesses of our electricity grid.
  
  On the transmission side, we do not have much redundancy on the main backbone. While a full redundancy cannot be advisable on economic grounds, at least there should be some backup in highly critical nodes along the backbone such that power could be transmitted on an alternate line. At the very least, the effects of such breakdown can be confined to a limited geographic area.
  
  But the worse problem is on the generation side.
  
  In a normal grid, the operator desires to have some reserve capacity at any given time. Which is obvious since not all plants would be running at peak capacities due to maintenance and technical considerations. But what we have is a reserve capacity which is barely useful when a major plant breaks down. While a reserve capacity of say 2,000 MW looks good on paper, it is no more than the capacity of two major coal-fired or natural gas power plants.
  
  The rated capacities of the existing plants may not dependable at all. Many of the older power plants—coal-fired, diesel-fired and geothermal plants— have actual capacities much lower than their rated capacities. Can anybody tell us how much the Bohol and Panay diesel plants –two plants under auction- are actually generating? For all we know, the old Panay plant could be worth more if sold as junk than being operated as a power plant.
  
  Can anybody guess how much the Bacman I plant (rated more than 100 MW) is currently producing? If you say 50 %, your guess is too high. This one is easier: How much is the Northern Negros geothermal plant (the capacity is 49 MW, or 40 MW, or 26 MW, depending on when you got the information) currently producing? You should have gotten it. The answer is nil.
  
  There are also reserves that may not be delivered to where they are needed most. For example, the abundant power from geothermal in the Visayas could be considered a reserve for the Luzon grid because it is connected to Luzon via a submarine cable. But the history of its performance tells a different story.
  
  What we have is what the industry players call “thinning reserves”. The reserve is there but it is so small that a minor disruption in the supply could send electricity prices at the wholesale electricity spot market (WESM) to the heavens. If you are operating cement or a semiconductor plant, you cannot afford a respite in operations. You need to buy power at exorbitant costs for a hopefully short period of time. The alternative is massive losses.
  
  Then there is the ownership structure of the generating plants. Much of the generating power is still in the hands of the Napocor-PSALM combine, so in theory, a collusion among the traders in the same cabal could influence the price at the spot market. This has been alleged to have happened before.
  
  WHICH brings us back to the question of what to do with the price spikes. Dampening the electrical price oscillations, as the engineers would phrase it, cannot be effected by political intervention. A systemic overhaul is required which include:

1. Broadening the ownership of the generation assets. In the near term, it means hastening the privatization process.

2. Improving the transmission grid. With the privatization of the transmission grid, we could only hope that the new owners would improve the system.

3. Increasing the number of generators. With a more dispersed ownership, one can be assured of a more functional spot market. Collusion would be minimized. The thinning reserves would be “thickened”. But then, encouraging new investments is a different question altogether. Our legislators could re-start the process by passing the renewable energy bill.

We hope to delve more deeply into these matters in the near future.

Reducing electricity systems losses : hard but doable

Early this month, the Energy Regulatory Commission (ERC) issued a draft resolution for public consultation mandating that, among others, the electricity of a distribution utility (DU) is to be treated as an expense and not part of a systems loss, and lowers the maximum recoverable rate of system loss from 9.5 percent to 8 for DUs and from 14 percent to 11 for electric coops, based on the total kilowatt-hour (kWh) generated, purchased and distributed.

This is a welcome development, for the ERC and previous electricity price regulatory bodies have not adjusted the systems loss caps for almost a decade. The high systems loss cap was also pinpointed as one of the reasons for the high power costs exposed during the high of the controversy between GSIS president Winston Garcia and Meralco.

Earlier, we have proposed a stretch target of 5% and an implied reasonable target of 7%, based on the average systems loss of European Union countries. We also maintain that the cooperatives should be treated like any other private DUs which means that they should also have the same caps.

We also reiterate that these business dinosaurs be sold off to private investors.

As to be expected, the distribution utilities cry wolf, saying that this could lead to huge losses.

Aboitiz Power Corp. president Erramon Aboitiz said that its unit the Visayan Electric Company, the DU servicing Cebu City and province, is within the current 9.5% cap, but reducing this to 8 % the company would have to book losses of some P 100 million.

However, he didn't say that it is not doable. In fact, he said that you can reduce systems loss by investing, but one has to make a decent return. Of course.

This was echoed by another Aboitiz firm Davao Light & Power Co. (DLPC) vice president Bienamer Garcia said the proposed lowering of the system loss "would entail a lot of cost” , but the firm's system loss level as of end-June 2008 already stood at 7.91 percent, just within the proposed 8 % cap.

The Aboitiz units want incentives. Fine. But the incentives (e.g., tax breaks for capital importation) should be for improvements specifically targeting reduction of systems losses at the same time that the systems loss caps are lowered.

Garcia said that there is already a performance-based mechanism in place and all that ERC should do is to align the proposed new cap with this.

“Let businesses figure out how to reduce those losses, then give incentives. When you give incentives, you start seeing what people can do. For me, it’s better to provide incentives to companies to reduce system loss,” Aboitiz said.

Amen.

Sick Napocor takes in a patient

The sick trying to cure another sick.

This is probably the apt description when a management team from the state-owned National Power Corp. (Napocor) is poised to take over the operations of Albay Electric Cooperative (Aleco) as stipulated in the operations and management (O & M) contract agreed and signed by both Napocor and Aleco last July 17.

In addition to overseeing Aleco's administration, finance, management and support services, Napocor will also suspend the interest and penalty charges on Aleco's unpaid billings for the former for the duration of the one-year contract. This can however be extended by mutual agreement.

For its part, Aleco shall avail of National Power’s financial and technical expertise to achieve efficient, reliable and profitable management of its electrical distribution system for a service fee of two percent of the power purchased from the power generator during the contract period.

We have recently alluded to this dire situation of this cooperative when we referred to a sick power distributor in the Bicol area.

But can Napocor, by itself facing financial difficulties and is only kept alive by intravenous injection by the government, able to sustain Aleco?

The multilateral lender Asian Development Bank (ADB) recently suggested that the sale of Napocor itself is one of the best ways this government can improve the electricity prices of this country.

At the moment, Napocor's business is generation and transmission, but little of retail distribution, so it is doubtful whether it can stage a turnaround. Sure, the problems of Aleco is miniscule relative to Napocor's difficulty itself, but are quite different.

Aleco's problems are management-related, or the absence of it. Aleco probably exemplifies what an electricity distributor should not be.

For this type of service business, the management team should have a technical grasp of the requirements needed. It should not be beholden to the local political warlords. It should have strict internal controls on money and personnel matters.

It should have a professional management team.

We have been advocating all along to sell off these electric cooperatives, which are a relic of the bygone era of state monopoly, to entities such as experienced distribution companies. One could start with the cooperatives serving a large number of the populace. This has been successfully done in recent years as in the case of the San Fernando, Pampanga electric cooperative which has been sold to a private interest.

Napocor's takeover is not the best solution; it should only be temporary.

The consumers should have no fear of a private takeover, only relief. As it is, the electricity distribution industry is highly regulated and consumer protection is in place throughout the service chain from generation to transmission and distribution.

They could only gain freedom from incompetent administrators of many of these cooperatives.